Special Report: Suppliers prepare for negotiations too
Just like buyers, suppliers collect information in preparing for negotiations, also. And just like buyers, they are ready to use it. Here's a look at some of the tactics used by the people on the other side of the table.
By Paul Teague -- Purchasing, 6/18/2009 2:00:00 AM
You're about to go into a meeting with a supplier representative to negotiate some part of a purchase agreement, most likely the price. You've done your homework, gathered data and planned your strategy. All that's left, really, is to state your demands, watch the supplier cower and then walk away with the agreement you want.
If only it were that simple.
One reason it isn't is that the supplier has done their homework too. In fact, the supplier's rep has probably gone through the same preparation you have:
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Studied the other side's business and needs? Check.
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Benchmarked the price and potential value? Check.
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Listed potential objections from the other side and how you'll respond? Check.
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Established the range within which compromise is possible and identified potential deal breakers? Check.
Yet, even though the supplier may have a strategy for the negotiation, you still have the advantage. For one thing, you have the budget. Perhaps as important, you have the experience.
"Few salespeople negotiate well," says Jeff Thull, CEO of the Prime Resource Group, a Minneapolis-based sales and marketing consultancy. "There isn't much time devoted to developing sales skills. Purchasing professionals are more prepared."
Moreover, says Dave Kahle, a sales trainer and president of the Comstock Park, Mich.-based sales consultancy The Dayco Group, the average salesperson actually doesn't negotiate. "Their managers do," Kahle says.
 “There isn’t much time devoted to developing sales skills. Purchasing professionals are more prepared.”—Jeff Thull, CEO, Prime Resource Group  “Try to see the world through the other person’s perspective, it should be collaboration, not a contest.” —Dave Kahle, sales trainer and president, The Dayco Group |
Both Thull and Kahle make their living teaching sales and marketing, and they advise their clients, sales reps and sales managers alike, to not only be prepared but to be flexible, non-confrontational, honest, factual, empathetic and, of course, persistent. They also teach that it's okay for a salesperson to walk away from a sale if the terms simply won't work for their companies.
They and others also advise sales people to do due diligence on their customers before entering discussions.
"Information is power," says Jim Lawton of Dun and Bradstreet in Waltham, Mass. "The richer the profile you have on the company the better." While Lawton says that in the context of helping buyers prepare for negotiations, it's advice that sellers/suppliers take to heart too. So, just as buyers will analyze suppliers' market position and financials, they'll analyze yours too, looking for any indicators that will make their selling easier.
By the time the supplier walks into the negotiating room, he or she presumably has a great deal of information, just as you should. Here is what Kahle and Thull say you are likely to see and hear from the supplier's side of the negotiating table:
An emphasis on content. Good salespeople try to be business advisors, says Thull. They strike a collaborative tone. Kahle says they will be careful not to get into an argument, and will try to establish an atmosphere of trust. Emotion is important to control, he says. "If you don't like the guy and don't trust him, you may not sign even if you agree on content."
Qualification. Salespeople will attempt to clarify that you really can make the final decision, and if you can't then to identify who will make that decision.
A push on value. Sales will always emphasize the value and benefits of their products rather than the price.
Probing. Salespeople will try to find out all aspects of your business and your specific need their product would fill. If you don't already have a similar product, they'll ask why and what you might be missing for not having it—consequences like lack of information or data. If you do have a similar product, they'll ask what it's not providing that you would like to have. Then, of course, they'll position their product as the one that provides the value you're looking for.
More probing. If you say their product costs too much, they'll ask you why you think so, then get back to the discussion on value and what the value they claim to offer is worth to you. They'll try to determine if it's a matter of budget, or if you really don't think the value is worth the price. Surprisingly, they may not immediately disagree with you when you say the cost is too high. They might even say that originally they thought so too, until they factored in the value. Or, they might say their product is over-engineered for your application.
Still more probing. They might ask you why you think the cost is "prohibitive," hoping you'll say that it's really not prohibitive but that you can get the product cheaper from another supplier. Then, they'll ask why you haven't bought it from the other supplier, hoping the answer provides them another opening.
Counterpoint. If you say you want a certain percentage knocked off the price, for example 10%, they'll ask if you've had a chance to look at the overall dollar impact of that price reduction and whether it's worth it. They could ask if other departments in the company, such as the service department, have had a chance to consider the value versus cost and its impact on warranty expenses. That's their attempt to determine if your savings goals conflict with the goals of the end users or other stakeholders in your company.
In the end, much, if not all, of the probing and preparation elicit information that purchasing should be prepared for anyway. And that, in part, is why both Kahle and Thull preach collaboration rather than strict negotiations.
"Try to see the world through the other person's perspective," says Kahle. "It should be collaboration, not a contest."
Be sure to read the buyers' side of of Purchasing's special report on negotiations exclusively here:
The fine art of negotiations
 Blah blah blah: Buyers get irked when suppliers make calls in negotiations.  No clue: Unprepared suppliers are sure to annoy buyers in negotiations. |
Don't you hate it when...
Every buyer has certain pet peeves with regards to supplier's behavior in negotiations. "I hate it when a supplier puts their salesperson pitch on too heavily," says William Hatzichristos of the New York Mets. " I like it when a supplier sits down and tries to understand what I need and how they can meet those needs instead of trying to push something on me I may not need."
There are two things that irk Shawn Stevens of OneCare Co. "First, if I'm negotiating with a supplier on a price reduction and they say they will give me the reduction only if I give them more business," he says. "And the other thing is the reluctance to work with us on overall cost reductions. If they are very closed-book and don't let us really look into their business, that tells me they have something to hide."
In a recent informal Purchasing survey, buyers listed their biggest pet peeves among suppliers during a negotiation. While responses ran the gamut, some of the the most common were:
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Changing terms already agreed upon.
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Saying they are not authorized to agree to certain terms and must bring in a higher-up or make a call back to the home office before any decision can be made.
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Come to a negotiation unprepared and simply don't understand what it being negotiated or what their own stand is.
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Ignores the product or spend area being negotiated and instead tries to push a new product.
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Complains that a buyer's request for a lower price is cutting into the salesperson's commission.
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An unwillingness to agree to specific deadlines or delivery specifications in a contract.
PURCHASING.COM EXCLUSIVE
Below is a more extensive list of some of the other pet peeves buyers reported about their suppliers' actions in a negotiation, as gathered in a recent Purchasing.com survey:
I hate it when a supplier...
Changes the players scheduled to be involved in a negotiation or brings in legal counsel at the last minute
Doesn't maintain the current status of negotiations in their records.
Springs a previously unknown concession from one of our own people on us at the last minute, making it more difficult to finalize the agreement.
Says they will need to get back to their boss to see what their position is.
Plays dumb about the raw material markets or doesn't have real negotiating authority.
Agrees to the conditions we request and then later just as we are about to sign an agreement that under certain scenarios they can't be met.
Cuts me off before I finish my statement.
Acts like they are the only game in town and I should just accept their proposal.
Complains that I am cutting into his commission.
Ignores what you are asking for and instead wants to push new product
Says they are qualified or certified by a certain company when they really are not.
Attempts to change the dynamic of the process by focusing on non-value added topics.
Wants to rehash issues that have been resolved.
Bashes their competition.
Excuses themselves and leaves the room as a thinly veiled negotiating tactic.
Second-guesses what I’m proposing or asking them.
Asks us what prices we are currently paying for the supply being negotiated.
Is ignorant of the history of business between our two companies.
After a competitive evaluation of bid and supplier selection, the proposed supplier incorporates significant (usually unacceptable terms) changes to of their proposal as they think they have it won or "they forgot something", typically a deal breaker
MORE PET PEEVES
And a recent survey conducted for Purchasing by the International Association for Contract & Commercial Management produced the following list of pet peeves from buyers on supplier behavior:
1. When suppliers insist on using their contract templates and they are poorly worded resulting in a prolonged negotiation because you have to negotiate every line to make the contract clear.
2. When the people authorized to make concessions are not available to discuss the deal points, making the deal drag on.
3. When suppliers do not give respect to the “relationship” and only go for the short term gain.
4. When suppliers do not comply with requirement for tenders as stated in the bid documents.
5. When suppliers due not liase with the proper parties within their organization concerning commercial agreements and it takes four months instead of two or less to close a deal.
6. Cold callers - when you advise that they cannot assist your company and they say "No Problem" ! yikes!
7. When suppliers say they can meet the customer's required-on-site date for product delivery then after you are pretty much locked in and some time has passed, they tell you they cannot meet the schedule. In other words, they tell you what you want to hear to get the order then reality comes out later.
8. When suppliers draft their Master Service Agreements requiring that an SLA and or t’s and c’s be attached to each service/sales order – We negotiate MSA’s to have
a. One SLA per product and NOT to negotiate it over and over or be susceptible to not seeing changes to SLA’s over and over; we want to amend the MSA to add an SLA for each new product we buy (and a product description and price schedule etc.) – we don’t want to have to gather up unconnected SO’s to find out what our deal is; and
b. One set of t’s and c’s in the MSA and do not wish to negotiate them or make ourselves susceptible over and over.
c. We always provide for a Service/Sales Order to have terms that take precedence over the MSA (so that we can negotiate special terms for a transaction) but that is on an exception basis only.
9. When suppliers want us to sign their NDA and their NDA is intended to cover off all disclosures and all agreements in the future AND IN THE PAST. [Clearly we can’t do anything but attempt to constrain further disclosures of information not submitted under an NDA and only so long as it is clearly spelled out. As well, we prefer to sign an NDA for each discussion or RFP etc. and are happy not to mark because we only take on the risk for that business opportunity investigation. We won’t sign an NDA that will replace the terms in our MSA which are more substantial.]
10. When suppliers are willing to sign a LOI with money on it or an incomplete agreement and then have no motivation whatsoever to invest in hammering out the rest of the terms which can make quite a difference to us operationally and financially. I’m getting executive approval to restrict the LOI to a time frame and to have as an express term that they’re not renewable.
11. Insufficient Understanding of Customer. Do not take the time to understand me as a customer and the specific business needs I have, in particular, focusing only on explaining their products and services without trying to guide me as to how a particular product/service can solve my problem.
12. Focus on Customer's Budget, Not Customer's Needs. Focus on how much I have in the budget, instead of what will help me.
13. No Hard Deadlines. Show an unwillingness to agree to hard deadlines for delivering products and completing services, making it likely my project will not come in on schedule.
14. No Clear Fees. Show hesitance when asked to agree to a definite price that can't be increased at a later date, making it likely my project will come in over budget.
15. Unclear Customer Responsibilities. A poor job of explaining what I need to do, as the customer, to be able to incorporate and fully use the goods/services.
16. No Access to Key Stakeholders. Do not provide access to everyone on the seller's side who needs to sign off on the deal, which results in numerous emails, contract versions, and fruitless meetings. The best situation is where all necessary stakeholders get on the phone, review the contract language, agree on revisions, and close the deal.
17. Long, Ambiguous Contracts. Send unnecessarily long contracts that are not clear as to exactly what is being purchased, at what price, following what deadlines, and specifying customer's duties.
18. One Sided Contracts. Send contracts heavily weighted in favor of the seller, so that time has to be wasted and legal fees spent negotiating a compromise version.
Get creative!
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