March 5, 2019 Negotiation Strategies in Supply Chain Management

Reevaluating your supply chain management deals and applying proactive negotiation strategies can increase your profit margins significantly

March 4, 2019

One of the oldest military negotiation strategies in a time of war was to besiege or cut off your enemy’s supply lines. The effective management of supply chains is just as vital to your success in business today as it was to the success of major military campaigns from medieval times through to modern warfare.

Many people in business view their market as a battlefield. To win the marketplace battle, it’s important to pay close attention to principles shared in vendor contract negotiation training when making deals with your vendors.

Vendor Contract Negotiation Training Goals

There are several goals to consider when negotiating contracts with your vendors. One of the main goals of your negotiation training is to teach you how to minimize your input costs so as to maximize your profit, without compromising on the quality of your end product.

According to members of Deloitte’s consulting team, there are four supply chain management revenue streams that determine the flow of income into and out of your business. All your supply chain expenditure and income can be categorized into the following four revenue streams.

• Energy Consumed
• Materials Used
• Non-Products (Waste)
• Products (Your main product and income generating by-products)

Energy and materials form the two input revenue streams while products and non-products form the output revenue streams. Unfortunately, three of these revenue streams (energy, materials, and non-products) cost you money and only one stream (products) delivers an income.

With this in mind, negotiation training strategies should ensure that you are increasing your profits by reducing your expenses .

Understand your Stakeholders’ Needs

Understanding the needs of your major stakeholders and customers is an important negotiation training skill. Seasoned negotiators understand that knowledge and research are foundational to a successful negotiation relationship. By first finding out what your vendors and suppliers want, you can find hidden opportunities to negotiate a better deal.

For example, there may be a great opportunity to turn a better profit by understanding the delivery lead times that your customers are comfortable with. While it may be enticing to offer free next day deliveries, your research may show that your customers are comfortable with 3 to 5-day delivery lead times.

Flexible delivery lead times give you more options in your product delivery logistics and increase your potential profits. Your research may also show that your customers may be willing to pay extra for next day or long distance deliveries.

It takes time to gather the information you need to fully understand all the decision makers in your negotiation process. It’s best to start your negotiation planning process early so that you are not forced to make rushed decisions in the end.

Make a united approach

The unity of your team is one of your most effective negotiation training assets. Your stakeholders and team of negotiators need to speak in one voice and communicate the same message to your vendors.

Take time to discuss your strategies with your stakeholders. If necessary, conduct team building exercises to develop relationships. Taking a joint negotiation workshop is useful in getting your team on the same page on the company’s negotiation strategies.

Use your RFx (RFP/RFT/RFQ/RFI) to create a strong BATNA

You can broaden your options by identifying and inviting the best vendors in your region (including your incumbent suppliers) to participate in your RFx .

Based on the proposals you receive, you can develop a strong Best Alternative To a Negotiated Agreement (BATNA). Combined with your contract negotiation training skills, you can use your improved BATNA as leverage when negotiating a better deal from your incumbent vendor.

Select Your Negotiation Styles Wisely

Many people choose a negotiation style based on their personal preference, upbringing, and natural temperaments. However, skilled negotiators know how to use the various negotiation styles interchangeably. The five main negotiation styles are as follows:

• Accommodating (Conceding)
• Avoiding
• Collaborating (Cooperating)
• Competing (Aggressive)
• Compromising

Your choice of negotiation style should purely be based on your negotiation plan and goals, rather than your relationship with the supplier. With sufficient contract negotiation training, you should be able to apply any of the five main negotiation styles with ease.

Conclusion

The effective management of your supply chain is key to the success of your business. Supply chains are much like water pipelines distributing your resources in your business networks. Bad deals in your supply chain are like leaks in the water system where you risk losing money. Your negotiating training skills are effective at helping you plug the leaks by negotiating deals with your vendors that add value to your business.

About the Author
An expert marketing advisor, Milena Gallo brings many years of branding and digital marketing experience to Negotiation Experts team. She brews up fresh content on a daily basis, cleverly crafting messaging that helps online businesses reach new audiences. Strategically-minded, Milena diligently moves growing businesses towards their marketing goals. When she isn’t online, Milena pursues her passion for the environment, spending time in nature, planting gardens, and supporting conservation and reforestation projects.

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