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Through multiple procurement projects, we've participated in hundreds of negotiation meetings with suppliers, that's provided us with valuable insight into how to ensure a successful renegotiation process. In this article, we share six practical tips on how to secure sustainable, long-term results from a renegotiation.
1. Invest in Analytics Upfront
Being well prepared is crucial for the outcome of a negotiation meeting. Prior to the meeting, you should always conduct thorough analysis to better understand the current situation. We recommend using a mix of both internal and external analysis for this purpose.
An internal analysis looks at factors within your business in relation to the supplier, such as
- spend development,
- what products or services you buy, and
- the supplier's relative share in the related spend categories (or product groups).
An external analysis looks at the wider business environment that affects your business and suppliers, such as
- alternative suppliers in the market and
- price comparisons across suppliers or supplier financials.
Here, performing the analysis manually is possible, but it will be both time- and resource-consuming. If you're using procurement analytics tools, such as Ignite spend management solution, these insights will be readily available.
Regardless of how you conduct the analysis, we recommend you to know all the key facts before entering the meeting.
2. Set a Clear-Cut Agenda
You should always set a clear-cut agenda for the meetings with time indications for each part. Communicate the agenda to the supplier prior to the meeting to ensure that they are prepared and understand the purpose of the meeting.
During a meeting, you can easily be distracted with small talk and other derailments that do not serve the purpose of the meeting. One of the internal participants should therefore be responsible for managing the agenda and time spent, and also notify if the meeting goes "off-topic".
3. Create an Overall Story
An overall story, clearly stating and sharing insights into why the meeting is being held, is always beneficial.
In the procurement projects we have participated in, there were often links to larger improvement program initiated by management - with clear objectives for cost reductions. By clarifying this connection, we show that the project is a high priority for the entire company, and that management is willing to take necessary measures against suppliers who don't want to contribute going forward.
4. Give Specific Feedback
Provide clear and specific feedback to the suppliers related to any demands you might have. This ensures that the suppliers know exactly what is expected of them, as well as any requirements they must satisfy for further cooperation. Be aware that while your demands should always be ambitious - they should also be realistic.
5. Indicate Possibilities
Suppliers and their sales people usually, if not always, want to sell more. A valid question that you must be able to answer, especially in light of how the future collaboration will be affected, is: "What's in it for us"?
To ensure a good negotiation climate, we advise you to consider and indicate possible growth opportunities that you can offer the supplier in return for their continued support. For example, are you currently buying goods or services from other suppliers in the spend category that this supplier could provide (i.e. bundling)?
6. Show Respect
Mutual respect is a crucial premise for a good cooperation. In a negotiation, you need to act with integrity and show respect for the opposing parties. If you are going to collaborate and work closely with the supplier going forward, this requires a constructive and fruitful dialogue throughout the contract period. Being professional and acting with common decency in meetings will always facilitate the best long-term results. Even after a tough round of negotiations, this will help to strengthen your relationship with the supplier.