Friday, April 8, 2011
The Invitation for Bid, Request for Proposal or Request for Quote is just another step in the negotiation communication process. Each document must provide the Supplier with the understanding of what you want. Sometimes you may not be totally clear in what you want or can afford, so you may identify specific alternatives or options you want them to bid on or, you may allow them to provide options or alternatives of their own.
You use these documents to do several things.
· First you want to set their expectations. They may have formed their own expectations during their prospecting stage, which need to be reset and these documents are the best alternative for providing them with an understanding of what is important to you. The sooner you can begin to set their expectations or break down expectations that they may have formed from their prior discussions with people from your company, the better off you are. Having it printed in black and white provides the authority of writing. This is your company’s formal position.
· You also use the documents as a mean of setting the benchmark or anchor for the negotiations. When they provide a bid or proposal based on these documents you need to hold them to it. If they come in at a later date and want to make changes, you use these documents to either hold them to their initial proposal or to extract concessions from them in return for the concessions they are seeking from you.
It is very important in any specifications that are provided, those specifications must be written in a manner that also sets the right expectations. Anything in the specification that would effectively restrict or limit the competition would eliminate your power of competition. You don’t want to give that up before you have started. One approach is to include the words “or equal”. This only works if what they are referring to really does in fact have other competitors that produce equal products. If they don’t, the language is ineffective. The best way is to write the basic specification in a manner which broadens the potential competitive base by having certain required areas of functionality which the broad base can supply and allows optional or alternative functionality with the decision criteria being based on the best value (a combination of functionality and price).
Every procurement negotiator needs to have good interviewing skills because you will be doing interviewing as part of qualifying a supplier, checking references and part of the negotiation can take the form of an interview. The simple fact is you never learn anything from speaking, you only learn by listening and asking questions.
In performing a supplier qualification part of the process should be to interview the Supplier and key members of their team. As with any meeting you should be clear with the Supplier about your expectations, the purpose, who you want involved, and what the agenda will be. You or someone on your team should take notes.
There are basically four types of interviews:
No predetermine questions, and form is open and adaptable
Standard information is sought from all such what occurs when you use an interviewing checklist such as a supplier qualification checklist.
Allows probing to uncover information by allowing the individual to decide how they want to respond
Simple yes or no questions
In dealing with Suppliers your interview could combine each type. For example in a pre-qualification you will most likely have a standard list of questions that you want answered. However based upon the Supplier’s response or based upon what you have seen in terms of the Suppliers production or service you may want to use open ended questions to probe deeper in a specific area or you may use a fixed response type of question to determine whether you correctly understood something.
M. Q. Patton in “Qualitative evaluation and research Methods” defined six basic types of questions that would be used in an interview:
- You can ask what a person has done or is doing (Behaviors)
- What a person thinks (Opinions/values)
- How they feel (Feelings)
- Facts (Knowledge)
- What people have seen, heard (Sensory)
For an operator on a production floor or a quality inspector you would use a behavioral question to understand what they do and how the do it. You might also ask them about what they think or how they feel about what they are doing. For the business manager or financial manager you would probably focus on the facts. If you had questions about what approach you should use or what potential problems you may have you would ask them their opinions. If you wanted to plant a see about the competition you could ask about what they have heard about another supplier or a new product and what differentiates the two. For someone that would manage or be a key member of the Supplier’s team that will support the work, you would focus on their knowledge and background to understand their capabilities and what they have done. You are there to understand what they do, how they do it, and what their opinion or values are. Something as simple as an opinion or value can reflect a potential disconnect between the Buyer and Supplier where selecting them may cause conflicts.
The sequence of questions is most important when trying to resolve a conflict in a negotiation. What you want to find out is whether it’s simply a negotiation position on their part or whether there is an underlying problem that needs to be discussed and dealt with.
When you are trying to uncover a problem, use open ended questions so they free to respond in their own way and describe the issue or problem. Use fixed response type of questions (simple yes or no, or single response) when you want to either control the direction the discussion goes or when an open ended response could provide an answer you don’t want on the table.
Sequence of Questions
- If the Supplier submitted pre-qualification information, don't ask those same questions.
- Ask clarifying questions if the information they provided wasn't clear.
- Ask about facts and include fact-based questions throughout the interview.
- Ask questions about the present before questions about the past or future.
- The last questions might be to allow respondents to provide any other information they prefer to add and their impressions of the interview.
Wording of Questions In an Interview
- Initial Questions should be open-ended. Respondents should be able to use their own language and terms when answering questions.
- Questions should be asked one at a time.
- Questions should clear.
- Ask "why" questions to better understand what the do and how they do it.
- If you feel the Supplier is being evasive in their responses, ask fixed response questions.
- Ask one question at a time.
- Look at their expressions and body language when asking the question as it will provide you with indications on whether they understand the question or whether you're hit a sensitive topic.
- Listen attentively, take notes of their responses
- When necessary, ask probing questions to fully understand their response or get the information you need..
- On key issues, restate what you think they said in your own terms to confirm that you understood what they said.
- When you need to switch topics make it clear so they understand the context of the question.
Where interviewing is extremely important is when you are purchasing a service that is highly dependent upon the skills of the individual or team that will be providing the service. A Supplier may
have a significant portfolio of work they have performed in the past that may make the company look like a good match for your needs. An interview would be used to find out who the individual or team was that performed the work, whether they are still with the company, and whether they would be available to perform the work for you. If they won't be available or are no longer with the company, you then would need to understand the capabilities of the individuals or team that would be assigned and their experience.
The first step in the Procurement process is internal information gathering that should be done with the requestor, users, subject matter experts, etc. to determine what is required. Similar to contract commitments you are looking for answers to the 4W’s and an H questions: Who, What, Where, When and How.
The goal of internal information gathering is to define the scope of the transaction, describe the elements that contribute to delivering that scope, and establish the conditions, under which the Product or Services will be provided or conducted, tested, and accepted. For major contracts information gathering is extremely important. What you learn as part of the information gathering phase can impact what you look for in a supplier, how your qualify them, the bid approach, contract type and contract terms that may be required.
In both preparing the Bid / Proposal documents and preparing the right contract there is significant information that the user or technical expert needs to provide. There are a number of different contracting approaches and each has a different speed and each require different levels of management. The answers to these questions provide direction on what approach should be used. For example, if the requester says that they have limited resources available to manage the supplier, you wouldn’t want to enter into a time and materials arrangement that requires the most management. Similarly, if your schedule is extremely aggressive you may not afford to be able to use a competitive bid approach that takes the longest period before work can commence. The technical expert should also be able to teach you about the product or commodity and many times will have past experience with the suppliers and with prior negotiations so they can help prepare you for what to expect.
The time to involve the technical expert is during any pre-qualification activity the will be performed. If there isn’t a formal pre-qualification or site visit required, as would occur with existing qualified suppliers, you need to involve the technical expert to help you not just provide the technical documents but to also provide all the information you need to prepare the bid or proposal document, select the contract approach and determine what terms are needed.
For large purchases information gathering may include:
Dates and Schedule
- What are your delivery dates or schedule requirements. (This can drive the contracting approach you select.) This could include the total time allowed, major checkpoints or phase milestones. In discussing schedule you could also discuss schedule requirements for managing critical risks or interruption to the business. For example when I purchased debit card processing services for a Bank one of the key schedule requirements was a prohibition on any system changes during the peak shopping periods leading up to the Christmas holidays as that was the period during which they had the most transaction and made the most money.
- How flexible are you on the schedule? Are you flexible if schedule has a significant cost impact? (This could allow you to request prices for different schedules).
- Are there Milestone deliverables? This can help identify the types and amounts of progress payments that may be needed.
Definition of the Project Scope: The boundaries that define the depth and breadth of the purchase, including functionality. In many cases this would be done by the specification.
You would need copies of specifications, drawings, statement of work and all other documents and the on-line location of referenced documents or standards. For all documents you would:
- Check that they are clear, complete, what is being asked for is realistic and the specifications would not restrict you to a single supplier unless that is absolutely necessary.
- Clarity mean being able to answer:
- Who is responsible,
- What are they responsible to do?
- When are they responsible to do it?
- Where must it be done?
- How must it be done
- They use the same defined terms as the Agreement
- There are no conflicting requirements.
- They are written using the appropriate standard of commitments for any deliverables and Supplier obligations.
- They include any assumptions that should be made where information is not fully available.
- The referenced documents are current and are correctly referenced.
Once you understand all the documents you can make sure the order of precedence is established in the event of a conflict.
Volumes of purchases expected. This should include estimates of both current and future volumes. Include the needed quantities for everything including samples, and prototypes.
Key Assumptions: environments or conditions under which the scope of work is defined and the estimates were determined.
Supplier Responsibilities: These are the tasks the Supplier will perform (or assist on) to develop or provide the deliverable product or service and any specific activity (or task), that you want to require and the Completion Criteria for those tasks. Where, what, when and how will they provide it?
Buyer Responsibilities: This would include activities (tasks) or deliverables that the Buyer must provide, perform (or assist on), to enable the Supplier to fulfill its responsibilities. Where, what, when and how will we provide it?
Deliverables: These are the Materials produced during the project by the Supplier, and delivered to the Buyer. For example do they provide you with samples or prototypes?
Delivery. Are there any special requirements for delivery, rigging, assembly, and start-up?
Acceptance criteria. Acceptance criteria are the detailed, objective, measurable conditions, which if stated in an Agreement, must be met by the Supplier in order to accept deliverable Materials provided by Supplier. Are special inspection acceptance or test requirements needed?
Completion Criteria for “project-based” SOWs. These are objective criteria by which overall project completion is measured.
Cost Estimate. How much do they expect to pay? Are there any benchmarks?
Flexibility. How firm are the requirements? How flexible is the schedule
Deliverable Materials Guidelines. How you want things delivered. This could mean things like the number of copies for a report, the media type for Software, etc.
How the performance will be managed and who will manage it? The amount of resources that are available for managing an activity can affect the type of contract you need. For example, you don’t want to do a time and materials relationship unless you have the resources to manage it. What escalation processes are required in the event of a problem? Is there any Project management requirements needed to help manage the performance of the work such as project review meetings?
- Are any special terms or insurances needed?
- What Intellectual Property rights are required?
- Is any of the information that will be confidential? What degree of protection is required?
Priorities. What are the 3 to 5 most important things you need or want from the activity? This can help prioritize what’s important for the negotiation.
Recommended, preferred, and potential Suppliers. Do they know of suppliers that they feel can do the work?
Alternative Suppliers, Products or Services. This can help identify potential leverage from competition. Are there any special capabilities or experience the supplier must have to do the work?
Bid, Proposal Requirements, What data and cost information do you want submitted with bid or proposals?
Risk Management Performance Management Needs
You would also ask whether the agreement will needs any performance or risk management terms such as:
- Approval of Project Personnel, or changes to Personnel
- Approval of Suppliers, Lower Tier Subcontractors
- Audit or Examination of Books and Records requirements
- Background Investigations
- Change of Control Rights
- Conflict of Interest restrictions for key personnel
- Coordination of Work requirements
- Stricter Confidentiality Requirements
- Management Escalation Procedures
- Escrow requirements
- Inspection of Facilities rights
- Additional Insurance Requirements such as
- Professional Liability and Errors and Omissions
- Employee Dishonesty and Computer Fraud Insurance
- Key Employee Restrictions
In addition you might also solicit information such as
- The financial impact if the supplier failed to perform (for use in determining potential Liquidated Damages.
- Whether there may be competition with others using the same supplier requiring a Most Favored Customer commitment
- Future needs to determine if you need multi-year Price Protection or purchase options
- Whether there is any need to make derivative works (for discussions on ownership and license rights)
- What type of payment mechanism works (Progress or milestone payments, retain age.
- If there is a concern about Recruiting/Hiring of Employees.
- Response Time / Performance Criteria
- Risk of Loss (different from normal delivery terms)
- Any special Safety & Security requirements that may be needed
- If the work will be done on the Buyer’s or Customer’s site,
- Temporary Use of Facilities
- Temporary Use of Machines
As the last part of information gathering I would ask: What, if any, prior communications or discussions they have had with any of the Suppliers? The simple reason to ask that is to understand what the Supplier(s) may have learned about your company’s specific needs, schedule, preferences etc. All are things that may provide them with an indication on their competitive position that can take leverage away from you in the negotiation. If you know, you can be better prepared to deal with it.
There are only so many times you can just say NO in a negotiation and be effective. To be more effective when you are saying no, you need to explain why and that’s part of selling your positions. Every Negotiator need to also be a good sales person to add strength and conviction selling them what you need and why and why you’re telling them no. No’s are easier to accept if there’s a reasonable reason why. If you sell your positions, when circumstances arise where its time to say no, it will be more effective.
· Sell them on what you need.
· Sell them on why you need it.
· Sell them on why it is important.
· Sell them on why its fair, reasonable,
· Sell them on why its the best alternative they have
· Sell them on why it’s good for them and the benefits they will get.
· Show them how others have agreed.
· Use all forms of legitimacy available to you to help sell them
o Market value
o Competitive benchmark
o Precedent by them or their competition
o Industry standard
o Expert opinions
o Credible data
· Use communication tactics to aid in selling them
o Use words that help you pre-suppose what you want the listener to accept
o Always introduce new by fitting it or positioning it the old
o Always introduce disruptive information slowly and gently
All of this is to persuade the other party that the requirements are needed and what you proposed is fair.
When Suppliers have objections, probe to understand their real concerns. Ask them "what if” you did this, or what if you did that. That can uncover the depth of their concern or possible alternatives.
In selling Suppliers try to set Buyer’s expectations through a number of legitimacy tactics such as standard agreements, standard prices, standard discounts etc. A very important part of negotiations for the Buyer is the setting and management of expectations. Expectations can be established by what is said or provided to the supplier regarding your requirement such as volumes, schedules, preferences, desired functionality, competition, opinions of other suppliers and their products. Expectations can also be set in other manners such as what is not said in response a supplier inquiry, or non-verbal responses to supplier’s comments. Expectations, once set, are very difficult to change. They are especially difficult change if the sales person has set their own expectations with their management on what they could achieve. Changing positions would then require them to do the undesirable task of re-setting their management's expectations.
The reason why setting expectations is important is because as part of the sales process Sales people will report back to their management on what’s in their sales pipeline, what’s their probability of winning and what they think it will take to win the Business. Their sales managers will be doing the same with their management. If you set the right expectations early, the Supplier’s sales management will know what it may take to win the business. If you don’t set the expectations early, the sales person will still have set expectations with their management. If the two are substantially different, (what you need, versus what they expected) you have placed them and their sales management in the position of having to go back through their levels of management to say that they misread the client and more will be needed to win the business. No one likes to go back to their management to tell them misread the situation. If the sales person doesn’t need to make they sale, they may not want to take it back to their management. The same applies to their sales management. I’ve run into situations where discussing with a Supplier’s management why they didn’t get certain business I identified certain point where we could not reach agreement and they were surprised by the issues. Obviously they would have agreed to them if it was brought to them, but their negotiators chose not to. Nobody likes surprises, so its best to set expectations early. It can also save you from wasting substantial time negotiating with a Supplier that simply won’t agree to what you need.
How do you manage expectations?
Start as early as possible in the process to set their expectations low.
Identify what you want, not what they want to provide.
Identify any areas or requirements that would not be acceptable (e.g. ownership, exclusivity, process, etc.).
Use meetings to re-affirm those expectations.
When you have competition, the most important expectation to convey to a supplier is that it is a competitive activity. The supplier wants to know information that can help them determine their competitive position. Don't tell them anything that will help them understand their competitive position such as the competition, their status, acceptance of their solution, the value placed on any features or benefits their product or service has. Each of these can give an indication of whether there is real competition. If there isn't competition the supplier will price their work accordingly.
Provide information that will keep them perceiving that there is strong competition (even if there isn't). Use every meeting to probe for useful information that will help in the future negotiations. The supplier also wants to know information that can help with their negotiation such as: the budget, the timing of the requirements, critical requirements, value of features, etc. A combination of budget knowledge and perceived lack of competition will usually provide you with a price close to your budget, but possibly far more than the job is worth. Information regarding schedules and volumes can be used to determine competitive position. If they can deliver and they know their competition can't meet the dates or volumes, they will know it's really not a competitive situation as long as the dates are important to you.
Critical requirements can also be used to determine competitive position. They will know that only they can meet those requirements or, if there are other suppliers who can meet the critical requirements, they will know where they traditionally stand from a cost perspective. Every company tries to make their product of service offering slightly different from their competitors. They will do this by adding features that others may not have. If they know that those features are important to you, they know it won't be a true competitive procurement or they will assume that you will pay more for those features which allows you them to avoid discounting their product substantially to win the business.
The more information you provide a supplier, the more a supplier can determine if a feature is of value to you and provides you with a benefit. The more they know about whether their features are benefits to you, the more they understand the real competitive position. The more of their features they feel are benefits to you, the more they will assume they can charge.
It is important to remember that Suppliers will know more about their market than you. They compete in the market daily. They know their competition, and understand the differences between their products and services and those of their competition. They also know the competition's recent sales wins (as they were their losses) and their backlog. If you tell them who the competition will be they can quickly size up whether someone will truly be competition. If you want to set the expectation that it will be competitive, they either shouldn't know anything about their competition or, you should include a competitor who you know will set that expectation.
If you can't properly set expectations or, if only 1 supplier can meet your needs, you shouldn't bid the work.
Types of Questions.
There are a number of different types of questions you can ask during a negotiation and to be a good negotiator you need to understand what questions to ask and when to use the different types of questions.
- There are closed ended questions that require a simple yes or no. You only ask these when you know what the answer will be. If the response can be what you don’t want, don’t use them.
- There can be leading questions with answers you already know. One question I may ask is what the Supplier would agree to what they are asking the Buyer to agree to for their own purchases?
- There can be questions about what, why or how? If you understand what they do, why they do it and how they do it, you should be able to understand the reasons for potential concerns.
- There can be questions to uncover facts, objectives, values, evidence, causes to understand positions. If you understand why they have a position, you can take steps to work around and solve the problem rather than focus strictly on positions.
- There are questions to uncover obstacles to agreement and the underlying issues or problems that need to be solved. I understand your position; can you tell me the specific issue or problem you are trying to address?
- There are questions to clarify or be more precise. You use these types of questions whenever you reach agreement to make sure that there is understanding about what was agreement.
- There can be questions requesting feedback. A good example of this is to say “you obviously have run into this issue with other customers, how do you resolve it with them?
- There are questions to help manage the responsiveness or flow of the negotiation. For example you can ask them if they need additional resources to respond or if you need to explain the issue to someone else in their company.
- There are “what if” questions. You use what if questions to explore potential options without proposing the option.
Questions are a great negotiation tool, and the use of questions to help in the negotiation will start well before the formal negotiation process begins. As part of their selling activity, salespeople may spend substantial time probing to determine the Buyer’s need, interests, timing, volumes, etc. They ask questions to determine the acceptance of their product versus the competition, whether any unique features they have are needed or desired by the Buyer that may reduce the competition. They may also probe to find out who the competition may be, so they get a better understanding of the competitive environment based on where they know they will stand their competition from their recent dealings. All this questioning by the Supplier needs to be managed so it doesn’t impact their perception of competition and the uncertainty in their getting the business.
As part of the Buyer’s pre-qualification of the Supplier, the Buyer should also be questioning the Supplier about what they do, how they do it, who their customers are, etc. to gather information they may be able to use in the negotiation. This questioning should also try to uncover the Supplier’s motivations, needs and hot buttons. For example, a simple question on their capacity and current business load may show how much they need the business. During any visit you should look at and question what they do as a standard and check for signs of potential issues or problems and ask questions to see if there are any issues or problems that you may want to raise during the negotiations to get an advantage. For example, I’ve seen Suppliers want to change extra for a step in their process that they perform for all their customers, which means it’s already built into the product cost. For example, if you found a large amount of product returns, you might question what is causing them or why the amount is seemingly large, and then use that in negotiating quality levels, replacement turnaround time, or controls over changes.
In the actual negotiation, questions are used for a wide variety of purposes:
- As Fisher & Uhry say: “Focus on interests, not positions”. Asking questions allows you to have an open discussion on the point(s) instead discussing and listening to their position(s).
- Questions force the Supplier to talk, which helps you learn about them, and the underlying issues or concerns.
- Questions can provide a break in your discussion and can keep you from potentially saying too much too soon.
- Questions force the Supplier to think about their position or their argument and what they really want, which may be different.
- Questioning can narrow the Supplier’s focus to a specific issue or issues.
- Supplier’s responses to questions become their proposal, which makes it easier for them to understand and agree upon if you like what you hear.
- Questioning breaks down barriers in communication which helps identify what the real problem, issue, or concern may be that needs to be addressed. Sometimes the stated problem or issue isn’t their real or primary concern.
- Questioning and listening attentively shows that you are interested in what they have to say, which allows better communications as you are respecting what they have to say.
- Questioning buys you time to mentally formulate your next steps, approach, tactics or next question.
- The right string of questions can help lead the discussion and Supplier to a position you want.
- They can solicit information to understand the underlying problem or reason for their response.
- They can invite joint problem solving
- They can help clarify information you received.
- They can verify that the information you have is current and accurate.
- They can check whether your current understanding is correct.
- They can be used to rephrase to determine whether there was agreement.
- They can probe for the degree of importance of an issue
- They can be used to share information or knowledge that will help you.
- They can help set expectations.
- They can show problems with their position or strengthen your position.
- They can use the Supplier’s information against them.
- Questions can help understand how close or apart you are
- Close ended questions can be used in making conditional concessions
- Questions can be used to introduce specific tactics.
Questions are structured as either close-ended or open ended. Closed ended questions should be used when you want to direct the discussion and limit the possible responses. Closed ended questions call for a simple response like yes or no. E.g. “If I do X, will you agree to that?”
Open-ended questions allow for an open response and are used to try to get at issues, motivations or invite problem solving. “What if” is an example of an open-ended question.
Questioning is also a way to introduce different tactics. For example, asking the Supplier “Do you understand the impact this will have on your competitiveness?” introduces the competitive nature of the activity and the use of total cost impact as part of the negotiation.
Most of the time you want to move from broad open-ended questions to narrow closed ended questions to continue to narrow the focus, but that’s not necessary. You may need to ask several closed ended questions just to effectively set up the right open ended question. For example, you could ask a number of closed ended questions to have the Supplier acknowledge that there is a problem, they understand it, and they understand the impact, before you ask they an open end problem solving type question like “how are we going to solve this problem?” or “What have you done with other customers to get over this same issue?”
Keep your questions simple and don’t ask multiple questions at the same time as the Supplier can then select which one it will answer, and that may not create the flow you want. Script out most of your questions in advance so you are careful to not ask a question that you may not want the answer to or which could hurt your position. Never ask a closed ended question when you are down to one issue and the response could leave you without any other options. After you ask the question stop talking and listen. You don’t learn anything by talking, you learn by listening. Listen to not just the words, but what they say, how they say it, the conviction they have and look at the body language during the response. This helps you understand the degree of importance or the pain they have with the issue.
Here some questions you’ll hear in many negotiations:
What if ____________________________? (Open-ended probe)
If we do _____ will you do ______________? (If, then tactic)
Do you understand the impact this has on your competitiveness? (Competition tactic)
Are you aware that your competition provides this? (Competition)
When you purchase from your own Suppliers:
What terms do you expect?
Would your Procurement people accept this?
Could you effectively manage your business with this?
All provide validity to your position by comparing it to what they do.
Who else do I need to talk to get agreement on this? (Escalation)
Can you explain why _____?
Here’s an example of using questions:
Assume the supplier is offering only a 1-year warranty, but all their advertising and marketing for the product says that the product has 100,000 hours of reliability and you want a 3-year warranty term. Your questioning could follow these lines:
- Doesn’t your Specification show you as having a reliability of 100,000 hours?
- If your product has 100,000 hours of reliability, doesn’t that mean that it should fail on average in 11 years?
- If the product has 11 years of reliability, how do you explain why you are only offering a 1-year warranty?
- Is there a problem with your reliability you haven’t made us aware of?
- Are you having a higher incidence of failures in the initial years that would drive up your financial exposure above the normal statistical rate?
- If you don’t have a reliability problem, and you aren’t seeing excessive early failures, what are you seeking to avoid?
- If your product were as reliable as you say it is, wouldn’t both the risk and cost be minimal for years 2 and 3?
- If it isn’t a cost or reliability problem, what’s the real reason behind this?
- Do you understand the impact this may have on:
- Your competitiveness?
- You getting this business?
- Your product being restricted in our use of it?
How you communicate is as important as the tactics that you use, as words show conviction. The way you communicate, what you say, the language you use and the way that you phrase it, can either enhance or take away from your power. Concessionary language reduces your power, as it doesn’t show your belief in your power or your conviction on the point. If the Supplier feels that you don’t strongly believe in what you are asking for, the likelihood is you won’t get it.
Too many Buyers are conciliatory in their requests telling the Seller what they would “like” something or asking the Supplier “if” they can do something. To improve success in your negotiation, be more positive in communicating your demands. Negotiation works best when the approach is tailored to the circumstances and your words show strength in conviction.
Could you give us a quote by _____
We need your quote by _____ to submit our bid.
We would like a quote for various volumes
The customer estimate is _______ per year; I need your best price to win this business.
What is your lead-time?
There is major upside potential so I need your best lead-time.
What is the cost?
I have a target price of _____ so I need to have you beat that, as I know others will.
Can we have cancellation/ returns privileges?
As this is standard product we expect to be able to cancel or return product subject to normal restrictions.
Can you do any better than that?
If we are going to jointly win this business we need you to do better. If we don’t win, you don’t win.
I would like your best price.
We won’t make it past the 1st round with the customer if we don’t get the absolutely best price right from the beginning.
What is your warranty?
Our customers are requiring a ___ month warranty which is consistent with your MTBF reliability data
It would be nice if...
We need _____ to set us apart from other bidders to help us win the business
We will consider that
That wouldn’t be acceptable. (You can consider it an then always go back to what they offered) but saying that you will consider it is a form of concession.
We would like your most favorable terms
To win this business for us jointly we need your most favorable terms and what the customer is asking of us you need to improve.
We need you to
We would like to buy this from you
We have multiple approved Suppliers from the customers AVL, but would like to buy this from you if you can be more competitive.
We would like
To Suppliers comments:
No (in all forms)
What if we ... Look for the reason behind the no.
That’s against our policy
We have the same type of policy but have to make exceptions when needed to win the business and this is critical for the deal.
That’s against industry standards
Sellers and not Buyers create industry standards. Buyers would feel this reasonable and consistent with other industries.
We can’t give you that pricing at your volumes for anti-trust reasons.
The law allows you to make allowances for competitive reasons.
I’ll show you the pricing we are giving ____. You are getting our best price.
Without being able to see their contract I’m not convinced that we are getting the best total cost.
The cost is ___ at this volume and ___ at that volume.
Neither impact your production costs. The price should not be based on an artificial price / discount volumes that bear no relationship to cost.
Suppliers are not mind readers. Be clear in what you want. Tell them what you need. Tell them why you need it. Tell them why it will be good for them. Keep them aware of your other alternatives (especially their competition). Show them why your position is fair and reasonable. You need to sell them that you have conviction. In doing so, never tell them anything that reduces your power like telling them that you need the item or you need to buy it from them. The more you let them assume about what you need, the greater the potential you will either not get what you need or they will give you more than you need and you will pay for it. For example if there is a broad disparity between your estimate of the cost of the work and their price, ask them for all their assumptions. Many times they may have assumed something that may not be what you need and you can reduce the cost simply by clarifying it.
When possible use any legitimacy you have in your discussions to reduce their power. If you have a good argument why what they are asking for isn’t acceptable, make sure that you communicate that to them. Show them how difficult it will be to accept their position. Show them how what you are asking for is “Fair and Reasonable” based on what others have agreed. Show them how experts would view it. Show them how the marketplace would view it. Hold them to the representations made in their marketing materials. Last, but not least, show them how it matches their competition both to reduce their power and to remind them of their competition. All of these things are considered forms of tactics, but they are also part of communicating.
Meeting of the Minds
Make sure you both fully understand what was said and agreed. To do this you always need to periodically summarize what was agreed. If it isn’t clear that there was agreement, probe to ensure understanding or restate what was agreed in a different manner to ensure their understanding is correct. This is especially important when dealing with Suppliers from different countries where language and interpretation can be a barrier.
To be a good negotiator you need to be a good listener! No one ever learned anything by talking, you learn by listening. Listen to what they have to say. Take time to evaluate what it means. Whenever you’re unclear about something, always probe to get additional clarity. To ensure that you heard them correctly summarize what you thought you heard. Listen to them and acknowledge their concerns. Use questions to get more information so that you fully understand those concerns. Once you understand them, you can then speak to their needs, propose alternatives and explore alternative to meet both parties’ needs. If you understand their positions and motivations you can add more information of your own to sell them on your position. You can also agree with their position, but explain why it doesn’t apply in this situation or why it doesn’t apply because of what you need.
What do communications have to do with Negotiations? The answer is simple, negotiations are communicating and if you are unable to communicate with the opposing party in an effective manner, your likelihood of success is substantially reduced. To be good negotiators you need to be able communicate. I once read that each party can have three different interpretations of a communication so when you have 2 parties communicating that makes six different potential communications that may occur.
Your communication may be
- What you wanted to say (but may not have)
- What you thought you said (which may not be what you said)
- What you actually said.
The party communicating with you may have heard what you said three different ways:
- They heard what they wanted to hear.
- They heard what they thought they heard
- They heard what you actually said.
Communication is successful only when what you actually said is what they heard and they fully understood it. For example, if you were familiar with negotiating with Japanese suppliers you would know that culturally they have difficulty saying no. So instead of saying no they will tell you that something will be “very difficult”. If it was your first time negotiating with a Japanese supplier you could interpret “very difficult” as meaning that it is something that they will try to do but feel that it is difficult. If you understand the Japanese culture you would understand that what they were effectively trying to tell you is no. What they wanted to say was no and what you heard may be more of what you wanted to hear which was yes.
If you negotiate internationally one of the first things you need to do in learning to communicate is to learn the cultural rules associate with communication in any country you do business in. In negotiations with English speaking counterparts you will find that the meaning of certain words will be different between America, Great Britain, Canada and Australia. The same words can have entirely different meanings. Even in negotiating within a country, different sections of a country may have different variations of language and it doesn’t stop there. Most industries and many commodities have a form of language of their own. Many of the terms may be unique or may have a unique interpretation in an industry or commodity. Let me give you a simple example of what I mean. The insurance industry speaks in terms that are frequently unique to only the insurance business. To the outsider, it’s extremely confusing. For individual consumers, laws were written that required Insurance Companies to provide “plain English” documents so consumers could better understand what is being communicated. Business does not get those consumer protections, so if you were ever to negotiate the procurement of various types of insurances for your company, you need to either be able to speak the language or have someone on our team who understands and can speak the language. Companies also have the tendency to develop their own internal language and acronyms that are
unique to them and which, if used with a 3rd party that never has done business with that company, would be confusing at best. Many times the point at which the confusion manifests itself is in the negotiation of contract terms. Contract terms may be slightly different or unique in the way each of parties use or describe them in their company.
Negotiations that both parties want to succeed can fail simply because one or both of the parties failed to communicate. When “Fisher and Uhry” in their book “Getting to Yes”, talk about focusing on interests and not positions, I believe that part of what they are talking about is the need for the parties to communicate to find a common ground. Most people aren’t clairvoyant, so they don’t know what you need or want and won’t understand it unless you tell them. Even when you think you have told them they may still not understand because of the common problems that exist in communication.
To make sure there is an understanding, don’t just tell them what you want, explain it to them and give them examples so there is no uncertainty. That way what you wanted to say thought you said and actually said will all be the same. When they are speaking you need to be a good listener to make sure that it’s not just what you wanted to hear, but its both what you thought and actually heard. To make sure you are communicating you need to question and confirm both understanding and agreement. Confirm any point where they apparently agreed. Confirm your understanding and agreement on their points.
There are five aspects of communication you need to focus on to be a good negotiator.
· First, you need to set and manage the suppliers expectations
· Second, you need to speak like a negotiator and make it clear what you want.
· Third, throughout you need to make sure that there is a meeting of the minds and that both parties understand and agree the same thing. Most problems that may occur during the performance of an agreement are the result of the parties not having the same understanding.
· Fourth, lean how to sell you points.
· Fifth, you need to learn the power of questions as part of both preparing for and conducting the negotiation.