Monday, March 7, 2011

Knowledge of Company Tools, Processes, Policies, Procedures

In most situations the negotiator is not alone and there are a number of resources and tools available to them to assist in preparing for the negotiation. For example, you probably have people who assess the credit of potential customers who you could use to help assess the financial stability of the Supplier. There are usually subject matter experts who can help you better understand the commodity. There are engineers and quality personnel who should help you assess the supplier to determine the Supplier’s capabilities and identify potential performance issues that may need to be addressed. I’ve used financial analysts to help evaluate the financial impact between different options. Companies usually have insurance experts you can get advice from if an issue comes up with insurance and you will usually have Import and Export compliance people who you can go to for issues in those areas.  Service people can help evaluate a product or service and provide guidance on concerns they may have with serviceability of a product or time to repair a product. Manufacturing engineers can look at a product and understand how is made, the processes used and what potential manufacturing issues may exist with manufacturing the product. If they are not part of the direct negotiation team they should be someone you can contact if there is a problem.

Most companies have tools that can also assist in negotiations. For example, contracts systems should allow you to compare what you have for terms with other suppliers or what precedent you already have with the existing supplier. Transaction systems should allow you to understand the historical spend data for the commodity or with the supplier. Performance tracking systems are always a great tool to use with re-negotiations with the Supplier where you can highlight problems with their past performance, the cost to you and allow you to tell the Supplier what they need to do if they want to keep or grow the business.

Every company has their own processes that cross the Supplier relationship. For example, there will be accounts payable processes, royalty payment processes, receiving processes, product return processes, order management processes. The simple reason why its important for the negotiator to understand these is because what you agree to with the supplier needs to be something that operates within those processes. For example if your accounts payable group makes payments twice a month and has specific cut off dates to be included in those payments, if you promise something different one of two things will happen. First you may not be able to do it and will need to go back to the supplier to negotiate something different, or you may need to have the processing done specially, and that adds more work and cost for the AP group to manage. Exceptions are things groups want to avoid unless they can see a clear benefit to the company and just because you agreed to it doesn’t constitute a benefit.
Policies and Procedures

Every company has policies and procedures that define the way they operate and this is especially true for Procurement that is involved in spending the company’s money. As with processes, its important to know what those policies and procedures are to ensure that what you agree upon falls within what you are allowed to do under those policies and procedures. You don’t want to have negotiate an agreement to later find out that the party who needs to sign it internally won’t because it failed to meet internal policies and procedures that involve source selection. For example many companies have policies on sole source, customer directed suppliers, requirements for supplier assessments, supplier performance evaluations, the type of contract that may be used, publicity controls, types of materials that can be used and legal or ethical requirements.

In the end, you never want to have to go back to the Supplier that you just finished negotiating with to tell them that you are sorry because what was agreed either won’t be signed or can’t be implemented.
The clear message in this is before your start to negotiate learn the parameters your company wants you to negotiate within!  Many times in asking your management or subject matter experts what you can or can't do, they will have experience they can share to assist you in getting smoother approval by your management.

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