Wednesday, February 2, 2011
Negotiation Preparation - Reviewing Supplier Proposals
In reviewing the Supplier’s proposals in preparing for the negotiation there are a number of steps you should take. The actions you take may be different depending upon the procurement policies you must follow. For example, in public procurement if you discovered a mistake in a Supplier’s bid the only options you may offer them is to either stand by their bid or withdraw the bid. In private settings you may have broader options, especially if the Suppliers know that it is not intended to be final and that additional negotiation can be expected. The key is treating all Suppliers fairly. So in the example of a mistake in bid, instead you might allow the Supplier to correct the mistake and at the same time ask the other suppliers whether they want to update their bid.
1. Make sure all questions are answered. If they weren’t go back to get them answered or find out why they did not answer them.
2. Check to see if all items requested were in fact provided and provided in the format requested. For example, if you requested a breakdown of the price, did they provide it?
3. Check the bid or proposal for errors in math. Check all extensions of pricing at the volumes quoted and all additions to make sure there has been no mistake.
4. Document any bid exceptions taken.
5. Document any contract exceptions taken.
6. Document any assumptions included.
7. Document any other requirements or other issues include in their proposal
If the Supplier is potentially under consideration for the negotiation, review the exceptions, assumptions and other requirements or issues with them to fully understand what they have proposed and why. For example are they opposed to making a commitment in general, or do they object to the specific requirement, would they agree to a slightly different requirement. How you do that is important. You don’t want to signal the fact that they may be the primary supplier under consideration. So its best to explain that you are in the process of clarifying proposals with all Suppliers. When you do that, and you review the exceptions, assumptions or issues with them, they can interpret those as needing to be favorable or they will be either disqualified or be at a disadvantage versus the competition. Many times it can make a number of the problems simply go away especially if they want or need your business. I’ve also been known to tell Suppliers how much of an impact certain things will have on our cost to do business with them, providing them with the underlying message that for them to win the business on those terms they will need their price to be that much lower than their competition. When you add a price tag to their issues it can help make issues go away. Sales organizations aren’t measured on the terms that get finally agreed and they have leeway to take certain risks. They do get measured based on the margins they achieve and may be more willing to give up an issue rather than be forced to reduce the price in order to remain competitive.
Another reason for making sure that you fully understand what the Supplier’s issues or problems are is it takes time to schedule and complete a negotiation, especially a major negotiation. The last thing you want to do is find out late in the process that there is a significant disconnect between the parties. When that happens the alternatives are usually all bad. You can start over with another supplier and have a significant impact to your schedule, or you can be forced to accept less to not impact the schedule. Further the more they know you are locked into them, the less willing they will be to make concessions.