Black Belt Negotiators: How to make "one" bigger than "five"
By Purchasing Staff -- Purchasing, 10/16/2008 2:00:00 AM
Purchasing's smartest negotiators move from conflict to collaboration fast. Match your wits against these pros. Guess their strategy. Then, read what they really did atpurchasing.com/negotiations.
Possible solutions: Try negotiating with a supplier; use only one grade of resin for every molder.
At his previous employer, Justin Reaume, now director of purchasing and supplier development at Magna Electronics North America, wanted to reduce the company's spend on resins. The company had been using five different injection molders and directed them to use specific resins. The resin spend was spread too thin for the molders to obtain competitive pricing based on the size of their buy. One resin represented a large portion of the spend. Reaume tried to negotiate the spend with that one supplier as one large customer rather than five small injection molders.
Problem: The resin supplier refused, fearing the molders would try to apply lower resin costs to their other customers. The supplier also thought other molders would learn of the new pricing and demand the lower price. And, there was a risk that the molder would take the savings but not pass it on to Reaume's company. For the solution, see www.purchasing.com/negotiations.
Solution:
Reaume offered the resin supplier a contract that promised them they would be designed in on any new product where their grade of Polypropylene would meet the functional requirements. In return, he asked for a large reduction in the resin price to be paid through rebates. Therefore, if his negotiation with them yielded a price of $.59/lb, and Injection Molder A buys the resin at $.74, and Injection Molder B buys the same resin at $.81, the difference between $.59 and the price the molders pay would be sent directly to his company in a quarterly rebate.
The advantage of this rebate was:
1) It protected the resin supplier's price in the market, as only Reaume’s company would know of the $.59/lb cost.
2) As engineering continued to specify this resin, the rebates would only increase.
In addition, he asked to split raw material increases 33/33/33 between his company, the resin supplier, and the injection molders.
Result:
The resin supplier agreed. Reaume’s company continued to receive significant rebates, and reduced the price increase risk by 66%.
Are you a black belt negotiator? Tell us about one of your negotiation successes, and we'll print it so others can learn from your experience. Send it to pteague@reedbusiness.com.
Now Playing: 