Thursday, January 27, 2011

Power - “You can’t always get what you want”

In Herb Cohen’s book on negotiating, he espouses that “You Can Negotiate Anything”, in fact that’s his book’s title. That’s the right attitude to have for negotiations, but the reality is sometimes more like the title of the Rolling Stones song: “You Can’t Always Get What You Want”.

I’ve seen negotiators become frustrated and fail by doing the equivalent of trying to put square pegs into round holes. Leverage is relative and there is an overriding factor in most leverage. Leverage helps you get what you want when giving it only impacts the Supplier’s relationship with you. The probability of getting what you want falls off dramatically when what you want will impact the Supplier’s larger interests. Suppliers will weigh the benefits your business provides against two things. The impact to providing it to you, and the impact it will have their other business. Here’s three common examples of this type of situation:

  1. In an outsourced environment you want the Supplier to extend your price and terms to that 3rd party. Your motivation may be simple, have the Outsourced Supplier get the price and terms directly so you don’t need to be involved in the transactions. The Supplier will consider the potential impact to them, not just on your business but for all the business they do with that 3rd party. Remember when we talked about the practice of tiers where Supplier’s have different terms and prices based on their volumes and how desirable a customer is?  Your request to have the Supplier extend the price and terms to the 3rd party may directly conflict with their tiering practices. If you had better pricing or terms, the 3rd pary will try to use them for all the other business they do with the Supplier and that’s difficult to stop. The net impact to the Supplier could be a loss of profit (because they are would selling at your lower prices to a much broader base and an increase in it risk (because they are selling at your terms preferred terms to a much broader base). If the Supplier says no to your demands, It may not be  because they don’t want to support you, it may be because your business may not be worth enough in comparison to the total impact to them.

  1. A second example is what’s referred to as channels conflict. I’ve seen a number of Buyer’s that wanted to buy direct from a local channel at their contracted price and weren’t able to. You may want to manage your purchase direct with the Supplier to avoid using a local channel or buy through the Channel at your price and terms. The Supplier must take into account the impact that could have with channel. They don’t want to expose special pricing or terms to the channel, as the channel would want those for all their business (which would once again decrease the Supplier’s margins or increase their risks).  Further as they are dependent on the channel for sales, they do not want to alienate the channel as that could impact the business they receive from the channel.  The channel may carry more weight from a sales perspective than the Buyer, so the Supplier may not want to do anything that would alienate them.

  1. A third example is sales location. Buyers may frequently want a Supplier to sell in a particular location so they can run VMI programs. For the Buyer a VMI program is win. To the Supplier, a VMI program can mean a change in the sales location which can create additional costs and risks.  A change in the location of sale can impact the income taxes they pay. It can subject them to duties or import expenses. It can subject them to other taxes such as transfer or inventory taxes. From a risk perspective, a change in the sales location would require that they be registered to operate there. It would make them subject to both local laws and local jurisdiction which may not be favorable to them. Any profits they make on those sales could also make them subject to other issues such as currency exchange or issues with repatriating the profits. A Supplier may refuse to agree to sell at a VMI Hub simply because of the many impacts that a different selling point could have on them financially or legally.

For agreement to be reached it must work for both parties. Trying to force a Supplier into doing something that’s against their broader interests is seldom successful. Think about the potential impact your request will have on their other business. Consider alternatives that can provide you with an equivalent to what you want, but structured in a way where it also works for the Supplier. For example, if the Supplier is concerned with giving a outsourced supplier with your price and terms, the parties could agree to a number of alternatives to provide something close. The Supplier could sells to the 3rd Party at the normal price and terms they would get at their tier, but agree to rebate you any price difference and allow you to enforce your terms directly on those outsourced supplier purchases so you continue to get the benefits you want while their relationship with the 3rd party won’t be impacted. They key is to not let the Supplier use these issues to keep the status quo or prevent it. Find out why the Supplier is not willing to agree to see if there is a workaround.

You know what the next portion of that Rolling Stones lyric is? “You can always get what you want, but if you try sometime you might find you get what you need.  Who knew the Stones were negotiation experts.   

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