Are buyer-supplier relationships collaborative or adversarial?

    There-are-no-win-win-outcomes-in-buyer-seller-negotiations
    facebooktwittergoogle_plusredditpinterestlinkedinmail

    It’s often said that win-win situations are the preferred outcome of buyer-supplier negotiations. This is true in the sense that by banding together and creating a healthy supply chain, each company in an integrated channel can focus on their core competencies and grow together.

    But is that an accurate way of describing negotiations? I got the idea for this article while reading some books on negotiating tactics and considering how these tactics seem to contradict the feel-good solution we all seek. Isn’t it more likely that one party that will win more than the other?

    Knowledge and time should be on your side

    It is always important to differentiate between one-off and longer-term relationships. But even so, the first round of negotiations can set the tone for future negotiations. And if it’s obvious that you have a deadline, a new supplier will be happy to take advantage of your lack of planning or foresight.

    “A potential source will be a little less willing to concede any of the minor points of an agreement if the buyer appears rushed. If the buyer must have an agreement before a deadline, and the source knows it, a premium will be added to the cost for the commitment.”[1]

    Often, a supplier has an advantage over the buyer in terms of product knowledge, limitations of the product, production costs and industry cost information through access to upstream suppliers. The best thing a lower-quantity buyer can do to project more power is to learn everything about the industry, and to narrow the knowledge gap as much as possible — and never divulge your deadlines too early. 

    Taking the hard line in transactional negotiations

    When it comes to the effective rules of negotiation, one writer councils that successful negotiating means “getting exactly what you want, and leaving nothing on the table” [3]. At first glance, this seems horribly ideal, but he then goes on to explain that the more you ask for, the more you get in any negotiation, and therefore the less you ask for the less you will get.

    He sums it up nicely by saying “If your expectations are low, your results will be low. Do not be fair. Be greedy”. [3] Look out if you need to deal with this tough customer when he is in a position of power in the buyer-seller relationship!

    Barrow, another writer, takes a more logical approach when writing about how to approach negotiations with vendors. He argues that while the planning and information-gathering stage is very important, you also need to consider the personalities of your counterparts, what your level of performance should be, as well as each party’s perception of their power in the relationship.[2] 

    “If your expectations are low, your results will be low. Do not be fair. Be greedy”.

    Perceptions of power – How does your supplier view you?

    The more you know the better. In fact, the well-informed buyer is usually the one that enters into talks with a supplier with more power, because they are the ones that decide whether or not their organization will buy. But more realistically, as a successful relationship develops, the situation in the marketplace, the importance of maintaining good relations with the vendor and ensuring that they are making a healthy profit may weaken what initially seems to be a strong negotiating position.

    According to Barrow, to gauge how your vendor perceives you, you first need to have a good understanding of your industry. You also need to anticipate the “thrust” of the supplier’s negotiating effort, together with past history between your companies to ascertain their attitude towards your account. Are they slow to respond to problems? This is another indication. But, if their performance has been consistently good, it’s a confirmation of your buyer power level.

    Another way to leverage and increase your buying power in order to make your business more attractive to in-demand suppliers is to offer them a longer-term contract (with the in-contract stipulation that other vendors may offer new innovative or lower prices). Another option is to offer quick payment terms for their invoices in return for a discount.[2] 

    Does the buyer’s power increase over the course of the buying cycle?

    I’m not sure if it’s directly related to the amount of time already invested conforming to buyer needs, or just the knowledge that it’s easier to keep you as a customer than find new ones, but “Your power to drive the vendor from the pricing point he wants to sell for, to the lowest point that he’s prepared to sell for, increases over the course of the buying cycle”.[3]

    And because vendors are more flexible about improving their bids after having spent considerable time trying to land your business, it follows that you should make them work hard to improve their bids over each other. Why? Because once you have communicated with them that you want to award them a contract, they are unlikely to make any more significant concessions.

    The point is clear: Make them to invest their time to get your business.

    “Your power to drive the vendor from the pricing point he wants to sell for, to the lowest point that he’s prepared to sell for, increases over the course of the buying cycle”.

    The bottom line

    Declaring that you seek a win-win outcome at the onset of negotiations sounds somewhat disingenuous. You should assume that on the other side of the table will be a good negotiator. “The good negotiator takes time to study the other side, to build the tactical plan around the weakness of the opponent”.[2] So, what does “win-win” mean to you? 

    Sources:
    [1] Hickman, P. 121 Global Purchasing: How to buy goods and services in foreign markets, (APICS Series)
    [2] C. Wayne Barlow, Negotiating Skills for the Purchasing Agent
    [3] Mike Buchanan, Profitable Buying Strategies: How to cut procurement costs and buy your way to higher profits

    Image: Grenadiers a Cheval at Eylau, 8 Fenruary 1807 

    Author Profile: John J Urban

    From a marketing and supply chain background, John actively promotes the trade activities of companies in Canada and Taiwan. Currently, he is completing his MBA degree at Taiwan National University. Connect with him on LinkedIn.

    Featured articles

    SPECIAL THANKS TO OUR SPONSORS AND PARTNERS:

    MENU