Monday, July 18, 2011

When is a walk away on a negotiation justified?


While walking away from the negotiating table is a tactic,  I wanted to share thoughts about when you should really walk away from a supplier. From a procurement perspective you weigh the needs you have and the value the supplier brings to the table against the costs and risk of both the deal and of dealing with that specific supplier. The less the need or the less the unique value they provide, the more I would consider walking away if the terms are out of balance from a cost/risk perspective.  

Risk varies based upon a number of factors.  Here are a few that I would consider:
1.     Who is the customer?  Is the purchase for internal use or for re-sale to a customer where the impact of a problem could be greater?
2.     The type of product or service. Specific commodities have inherent risks.
3.     The supplier history and reputation. Many suppliers may stand behind their products in the event of a problem but may not agree to contract terms that force them to.
4.     How the product or service will be used.  For example the same electronic component could be used in a computer tablet or in a medical life support system. The difference in potential liability is huge.
5.     The sourcing strategy.  Will it be single or multiple sourced.
6.     How do the contract terms protect against the potential costs or risks.
7.     The supplier's financial strength. Contract promises are of little value unless the supplier has the financial resources to stand behind them.

Risks can also have mitigating factors. For example, where a product stands in its product life cycle can be a mitigating factor for some risks. The number of alternatives you have and how long it would take to migrate and how costly that migration would be will vary the risk. What the business will do to manage the risk in the future would also be a mitigating factor. For example bringing in a high-risk supplier would be less or a concern if the business committed to develop or qualify an alternative source.
 
Procurement has the responsibility to highlight the business risks.  When there is only one option my opinion is the final decision to walk away needs to be made by the individual that has profit and loss responsibility for the business. If they decide to accept the risk, it will be an informed decision where they know the risks they are accepting.  They will also know the costs associated with mitigating the risk such as second sourcing.  Manage the risk has a cost associated with it and that cost will impact the profitability of their business.

If the supplier wants me to accept risks that only they can manage, the only time I wouldn’t walk away would be if 1) I needed them, and 2) I had no other option, and 3) the business owner agreed to accept the risk.

List of Blogs by Subject a/o Oct 12 2011

AS OF OCTOBER 20, 2011 THIS LIST WILL NO LONGER BE UPDATED. AN UPDATED LIST OF BLOGS IS NOW BEING MAINTAINED ON MY WEBSITE. KNOWLEDGETONEGOTIATE.COM. UNDER THE TAB "HOT-LINKS TO MY BLOG" YOU WILL FIND THE COMPLETE UPDATED LOST OF BLOGS IN ALPHABETICAL ORDER THAT HAVE HOT-LINKS BACK TO THE SPECIFIC POST. NO MORE HAVING TO SEARCH FOR THE DATE OR GO THROUGH MULTIPLE POSTS TO FIND THE SUBJECT YOU WANT!


Why I wrote this blog:
A little knowledge is a dangerous thing Nov 29, 2010

General Knowledge Needed by Negotiators (Types of Knowledge to Build)
General Business Knowledge -Dec 1, 2010
Negotiation Knowledge - Dec 7, 2010
Procurement Knowledge - Dec 3, 2020
Contracts Knowledge - Dec 9, 2010

Information about my book and the blog
Information about my Book - July 5, 2011
Welcome to my blog -May 4, 2011
Now using twitter to announce new posts - July 20, 2011
Differences of opinions – a note to readers - August 1, 2011


Individual Subject Blogs
Acceptance - April 11, 2011
Acceptance – thoughts on negotiating acceptance - Feb 22, 2011
Action Item List - Feb 4, 2011
Active voice - Dec 12, 2010
Adding Value - Cost Drivers - Understanding cost drivers as part of productivity August 23,2011
Adding Value - Improving productivity August 24, 2011
Advance payments - April 11, 2011
Agency - April 11, 2011
Agreements to agree In the future - April 11, 2011
Agreement – is it what you want and need - Feb 7, 2011
Alternative Dispute Resolution - June 29, 2011
Amendments - April 11, 2011
Amendments versus addendums - June 29, 2011
Amendments, addendums, and change orders - July 7, 2011
Amortizing one time costs into the price - April 11, 2011
Approval over changes, modifications - negotiating - Feb 11, 2011
Arbitration, Mediation, Litigation – which is best to resolve disputes - July 19, 2011
Assignment April 11, 2011
Assignment – thoughts on negotiating Feb 10, 2011
Auctions - reverse auctions - August 19, 2011
Audit rights – thoughts on negotiating Feb 11, 2011
Authority April 11, 2011
Avoiding Contract Problems August 30, 2011
Back to back March 21, 2011
Bailment April 11, 2011
Bank Guarantees Sep 23, 2011
Bargaining zones Feb 1, 2011
Becoming a great negotiator July 8, 2011
Beginning work without a contract July 30, 2011
Behavior – structuring contracts to drive behavior Jan 7, 2011
Benchmarks – Competitive price April 7, 2011
Best pricing clauses April 11, 2011
Best and final offer April 11, 2011
Bids April 11, 2011
Bids, quotes, RFP’s as part of negotiation Dec 6, 2010
Breach April 11, 2011
Body language July 14, 2011
Bonds and Bank Guarantees Sept 23, 2011
Business writing April 11, 2011
Cancellation April 11, 2011
Carve outs April 11, 2011
Certificates of Origin April 11, 2011
Change of Control April 11, 2011
Changes August 17, 2011
Channels April 11, 2011
Choice of Laws April 11, 2011
CISG and UCC July 5, 2011
Claims April 11, 2011
Claims - Negotiating April 11, 2011
Commodities – Learning a Commodity April 11, 2011
Common sense - Using common sense Sept 1, 2011
Communication Basics April 8, 2011
Communication – In the bid / proposal stage April 8, 2011
Communication - Internal questions to ask in preparation April 8. 2011
Communication - Interviewing April 8, 2011
Communication – Learning to sell positions April 8, 2011
Communication – Managing your team’s communications April 7, 2011
Communication – Setting and managing expectations April 8, 2011
Communication – Types of questions April 8, 2011
Communication – Using questions April 8, 2011
Communication – Using the right words April 8, 2011
Compatibility of documents April 7, 2011
Competition April 7, 2011
Competition - Getting and maintaining competition April 7, 2011
Concessions – Negotiating concessions Feb 22, 2011
Confidentiality Agreements April 7, 2011
Confidentiality - Marking requirements and oral disclosures Sept 21, 2011
Confidentiality – Thoughts on confidentiality obligations Feb 22, 2011
Conflict of laws April 11, 2011
July 19, 2011
Consignment April 11, 2011
Construction Procurement August 17, 2011
Continuity of Supply April 7, 2011
Contract – legal requirements for a contract Dec 13, 2010
Contract – what should be in a contract Dec 12, 2010
Contract administration April 6, 2011
Contract construction April 6, 2011
Contract drafting with precision April 6, 2011
Contract drafting – using active voice Dec 12, 2010
Contractual impact of who you buy from. August 6, 2011
Contract knowledge – basics you should learn Dec 9, 2010
Contract management April 6, 2011
Contract problems – legal thought process April 5, 2011
Contract problems - avoiding August 30, 2011
Contract risks April 5, 2011
Contract templates July 14, 2011
Contract types Dec 16, 2010
Contracting approaches July 2, 2011
Contracting process October 7, 2011
Cost accounting terms August 11, 2011
Cost drivers - as part of productivity August 23, 2011
Cost of money April 4, 2011
Cost in performance April 4, 2011
Costs in terms April 4, 2011
Cost management programs March 25, 2011
Cost reduction - working with suppliers to reduce cost Sept 27, 2011
Counterparts - Using counterparts to speed contract signing Sept 20, 2011
Customer relationships impact on successful negotiations August 2, 2011
Covenants March 25, 2011
Cover March 22, 2011
Creating the impression of demand Oct 4, 2011
Currency exchange - Hedging Sept 19, 2011
Damages March 24, 2011
Dates March 24, 2011
Days March 24, 2011
Defined terms March 24, 2011
Delivery March 23, 2011
Delivery – Thoughts on negotiating delivery Feb 21, 2011, Feb 16, 2011
Demand - creating the impression of demand Oct 23, 2011
Derivative works March 23, 2011
Development agreements March 23, 2011
Differences between Goods, Service and Software templates March 15, 2011
Differences between Manufacturing product based procurement and project based construction procurement July 20, 2011
Differences between tangible and intellectual property March 9, 2011
Discounted Cash Flow Jan 31, 2011
Discounts March 23, 2011
Dispute resolution April 11, 2011
Duplicate agreements March 24, 2011
Duties – rights and duties Jan 20, 2011
Effective Dates March 22, 2011
Effective Date – Thoughts on negotiating Feb 16, 2011
Efforts – Best, Reasonable - see standards of commitment Jan 11, 2011
End of Life April 7, 2011
Enforceability Dec 10, 2010
Enforceability costs March 22, 2011
Entire agreement – see merger provisions Feb 11, 2011
Epidemic defects – Thoughts on negotiating Feb 16, 2011
Escrow March 22, 2011
Estimated requirements July 2, 2011
Excess and Obsolete - Contract view of disposing excess and obsolete Sept 9, 2011
Excess cost of re-procurement March 22, 2011
Excuse of performance March 22, 2011
Exhibits March 22, 2011
Expectations April 8, 2011
Expediting delivery March 14, 2011
Extensions of time July 1, 2011
Features and benefits March 22, 2011
Financial analysis of Suppliers March 21, 2011
Five forces of competition Sept 12. 2011
Flow-downs March 21, 2011
Force Majeure March 17, 2011
Force Majeure – thoughts on negotiating Feb 15, 201
Foreign exchange March 17, 2011
Form, fit & function March 16, 2011
Formulas March 16, 2011
Forum April 11, 2011
Frustration of a contract August 24, 2011
General Indemnity – Thoughts on negotiating Feb 15, 2011
Getting to know your customer August 1, 2011
Good faith July 5, 2011
Gross negligence - When to use gross negligence and willful misconduct Oct 12, 2011
HedgingSept 19, 2011
Hold harmless March 10, 2011
How business operates Dec 2, 2010
Importer of record March 11, 2011
Incentives March 11, 2011
Incorporation by reference March 11, 2011
INCOTERMS August 9, 2011
Indemnities March 10, 2011
Indemnity types
Industry standard agreements August 11, 2011
Inflation Indices Sep 26, 2011
Insurance March 10, 2011
Insurance – thoughts on negotiating insurance Feb 21, 2011
Intellectual property March 9, 2011
Intellectual Property Indemnity – Thoughts on negotiating Feb 14, 2011
Intellectual property infringement remedies March 9, 2011
Intellectual property - work for hire Sept 23, 2011
Interviewing April 8, 2011
Inventory cost March 8, 2011
ISO and other standards agencies July 11, 2011
Knowledge of company tools, processes, policies, etc. March 7, 2011
Knowledge qualifiers March 7, 2011
Lead time – Thoughts on negotiating lead time Feb 14, 2011
Legal defenses to void a contract March 7, 2011
Legal terms Is it a legal term?
Letters of credit Sept 22, 2011
Letters of intent March 5, 2011
Liens and waiver and release of liens Sept 28,2011
Life cycle cost March 4, 2011
Dec 19, 2010
Limitation of liability clauses March 3, 2011
Limits of liability March 3, 2011
Limitation of Liability – thoughts on negotiating Feb 13, 2011
Linking Oct 3, 2011
Liquidated damages June 28, 2011
Loan of Product April 11, 2011
Managing demand March 1, 2011
Managing performance Feb 6, 2011
Managing Suppliers – Supplier scorecards March 1, 2011
Manufacturing rights (continuity of supply) April 7, 2011
Merger provisions- thoughts on negotiating Feb 11, 2011
Milestones and Progress payments Sept 29, 2011
Modifying templates to manage risk Feb 24, 2011
Most favored customer terms August 15, 2011
Negotiating with Consultants, Accountants and Lawyers August 4, 2011
Negotiation anchors Feb 3, 2011
Negotiation books October 5, 2011
Negotiation knowledge – basics you should know, Dec 7, 2010
Negotiation planning and preparation Feb 2, 2011
Negotiation preparation – Assessing the Supplier’s team Feb 3, 2011
Negotiation preparation – Internal information gathering Feb 2, 2011
Negotiation preparation – Reviewing the Supplier’s redline Feb 2, 2011
Negotiation preparation – reviewing the Supplier’s proposal Feb 2, 2011
Negotiation preparation – Team rules Feb 2, 2011
Negotiation stages Feb 3, 2011
Negotiation strategies Dec 8, 2010, Feb 1, 2011
Negotiator attitude Feb 1, 2011
Negotiator errors Feb 1, 2011
Negotiators that want terms to be mutual July 21, 2011
Net present value Jan 31, 2011
Non-compete provisions Jan 31, 2011
Notices – Thoughts on negotiating notices Feb 13, 2011
Novation April 11, 2011
Novation - How to novate a contracto or purchase order August 24, 2011
Numbers March 24, 2011
Opportunity cost Jan 31, 2011
Order of precedence Jan 30, 2011
Order of precedence – thoughts on negotiating Feb 12, 2011
Origin April 11, 2011
Parent, company guarantee Jan 30, 2011
Parties – Thoughts on negotiation legal parties Feb 12, 2011
Payment, payment schedules Jan 30, 2011
Payment – thoughts on negotiating payment Feb 12, 2011
Pen and Ink changes Jan 29, 2011
Penalties March 11, 2011
Penalties versus liquidated damages Jan 29, 2011
Penalties, liquidated damages – do they drive performance? June 28, 2011
Percentages as triggers Dec 16, 2010
Performance – Managing Supplier performance Feb 25, 2011
Period of availability April 7, 2011
Personal data protection and liability August 18, 2011
Persuasion – sales use of the principle of persuasion Jan 17, 2011
Pledging April 11, 2010
Point in time versus auto updating agreements Jan 28, 2011
Power – assessing the power in a relationship Jan 27, 2011
Power – the point of no return Jan 27, 2011
Power – things that impact your power Jan 27, 2011
Power – you can’t always get what you want Jan 27, 2011
Preparing for the negotiation Sept 20, 2011
Preparation – Internal questions to ask April 8, 2011
Prequalification – Checking references Jan 26, 2011
Prequalification – Financial analysis of Supplier Jan 26, 2011
Prequalification – negotiation in the prequalification phase Jan 26, 2011
Prequalification – the 3 dimensions of prequalification Jan 27, 2011
Prequalification – qualifying the Supplier risk Jan 26, 2011
Pricing – how supplier manage pricing March 14, 2011
Price curves Sept 14, 2011
Price – establishing competitive price benchmarks July 9, 2011
Price - Getting competitive pricing when locked in August 2, 2011
Principled negotiations and pareto optimalization curves Oct 11, 2011
Privity of contract Jan 26, 2011
Procurement Dec 13, 2010
Product design impact on supply chain August 15, 2011
Product development Jan 25, 2011
Product or Service positioning Dec 16, 2010
Productivity - Improving productivity August 24m 2011
Program management in negotiations Jan 25, 2011
Progress payments Sept 29, 2011
Proof reading Jan 25, 2011
Protection against Supplier actions Jan 25, 2011
Psychological needs Jan 24, 2011
Purchase Orders – thoughts on PO’s under contracts Feb 18, 2011
Purchase Order Types and Acceptance August 25, 2011
Purchasing – Impact of who you buy from, who is purchasing March 13, 2011
Qualifying words – softening / qualifying words Jan 13, 2011
Question types April 8, 2011
Rebates August 16, 2011
Redline analysis April 5, 2011
References – checking references Jan 26, 2011
Request for proposals April 11, 2011
Request for quotations April 11, 2011
Releases Jan 23, 2011
Reliability - Understanding quoted reliability numbers Sept 13, 2011
Remedies April 11, 2011
Jan 23, 2011
Requirements contracts Jan 21, 2011
Rescheduling April 11, 2011
Responsibility – Thoughts on negotiating Feb 11, 2011
Reverse Auctions August, 19, 2011
Rewards March 11, 2011
Rights or duties Jan 20, 2011
Risks April 5, 2011
Risk - Applying the right level of risk management August 8, 2011
Risks – How supplier manage risk and liability Jan 18, 2011
Risks Managing risks and cost Jan 19, 2011, Jan 11, 2011
Risks – procurement risks Jan 18, 2011
Risks – quanifying risk Jan 18, 2011
Safety nets Jan 19, 2011
Sales approaches Sept 16, 2011
Sales speak Jan 17, 2011
Sales tactics Jan 17, 2011
Section headings Jan 14, 2011
Self inflicted wounds (problems caused by Buyer’s team) Jan 14, 2011
Selling positions April 8, 2011, Feb 8, 2011
Service and support related issues Jan 14, 2011
Service Level Agreements July 13, 2011
Show me Jan 13, 2011
Softening words – softening / qualifying words Jan 13, 2011
Spare parts, repairs, maintenance, self maintenance August 29,2011
Specifications – formulating Jan 12, 2011
Specifications – the importance of good specifications Jan 12, 2011
Specifications – Using supplier specifications Jan 12, 2011
Standard terms – why are they included? Dec 12, 2010
Standards of Commitment Jan 11, 2011
Statements of work, scope of work Jan 11, 2011
Statement of work – risk management Jan 11, 2011
Statements of work – keys in writing Jan 11, 2011
Statute of frauds Jan 11, 2011
Statute of limitations Jan 11, 2011
Stocking hubs Jan 10, 2011
Strategic Relationships July 12, 2011
Strategies for dealing with procurement October 12, 2011
Structuring contracts to drive behavior Jan 7, 2011
Subcontracting – negotiating subcontracting rights Feb 10, 2011
Subcontracts - What's most important in subcontracts? Sept 12, 2011
Subsequent documents Jan 7, 2011
Supplier - educating the supplier on what to expect in doing business with you Sept 6, 2011
Supplier financial analysis Jan 26, 2011
Supplier knowledge – how companies are organized Jan 5, 2011
Supplier proposals - reviewing Jan 21, 2011
Supplier qualifications of the Buyer Jan 3, 2011
Supplier qualification or vendor validation use in negotiation August 8, 2011
Supplier questions March 2, 2011
Supplier relationships Jan 6, 2011
Supplier risk – prequalification-qualifying the Supplier risk Jan 26, 2011
Supplier scorecards March 1, 2011
Supplier surveys - common questions to ask and why August 12, 2011
Supply chain Dec 13, 2011
Supply chain cost, Dec 17, 2010
Survival Dec 22, 2010
Survival – thought on negotiating Feb 10,2011
Tactics – 100 plus tactics Dec 20, 2010
Tactics – by negotiation phase Dec 20, 2010
Tactics – Dealing with negotiator the want to mirror terms Dec 21, 2010
Tactics – How knowledge works with tactics Dec 20, 2010
Tactics – Mixing and combining tactics Dec 20, 2010
Tactics - Other side quoting their resume August 2, 2011
Tactics – My favorite Dec 20, 2010
Taxes – thoughts on negotiating Feb 10, 2011
Term – thoughts on negotiating the contract term Feb 9, 2011
Terminating a Contract Dec 20, 2010
Termination with cause – thoughts on negotiating Feb 10,2011
Termination without cause – thoughts on negotiating Feb 10, 2011
Third party beneficiary Dec 19, 2010
Third party purchases Dec 19, 2010
Time – Contract time periods Dec 19, 2010
Time to Revenue, Time to Market July 22, 2011
Time value of money Dec 17, 2010
Total cost issues in contract terms Dec 17, 2010
Total cost, life cycle cost, supply chain cost Dec 17, 2010
Total Cost - Quality Dec 19, 2010
Trumping language Dec 17, 2010
Types of contracts Dec 16, 2010
UCC and CISG July 5, 2011
Understanding a product or service Dec 16, 1010
Using Microsoft Word in negotiations Dec 16, 2010
Using percentages as triggers Dec 16, 2010
Using questions April 8, 2011
Using suppliers to help reduce cost July 8, 2011
Value equivalence Dec 15, 2010
Value engineering Dec 15, 2010
Value of money April 4, 2011
Value based pricing, value based selling Dec 15, 2010
Vendor Managed Inventory, Pulls, Liability Feb 9, 2011
Warranty exclusions Dec 14, 2010
Warranty Exclusions – thought on negotiating Feb 17, 2011
Warranty Exclusions for Product Damage June 30, 2011
Warranty – financial aspects or warranties Dec 14, 2010
Warranties Dec 14, 2010
Warranty length Dec 14, 2010
Warranty negotiation – warranty against defects Dec 14, 2010
Warranty – thoughts on negotiating out of warranty service Feb 18, 2011
Warranty redemption – thoughts on negotiating Feb 9, 2011
What happens when laws change that affect the contract July 17, 2011
When is a walk away from a negotiation justified? July 18, 2011
When to negotiate after receiving a competitive bid or proposal October 6, 2011
Willful misconduct - when to use gross negligence and willful misconduct Oct 12, 2011
Work for hire March 9, 2011, Sept 23, 2011
Writing Purchase Specifications, Statements of Work or Scope of Work July 4, 2011
Yes & No People Sept 15, 2011