Procurement negotiation isn’t easy. For many, it feels like a delicate balancing act. It’s understandable because the skills required for negotiation often seem at odds with one another. You must be straightforward but tactful, persistent but patient and focused but flexible.
When it comes to potential and existing suppliers and vendors, many hesitate to engage in negotiation simply to avoid conflict. But, contrary to popular belief, negotiation doesn’t have to be combative. Additionally, not initiating vendor negotiations means you may leave value on the table or open your organization up to risk. Consequently, vendor negotiation is a key skill in many procurement roles. Indeed, whether you work on direct or indirect procurement, being able to negotiate has a tremendous impact on success.
In this blog, we’ll explore procurement negotiation. First, we’ll discuss the definition and advantages of negotiation in procurement. Then, we’ll share tips and best practices to help procurement practitioners increase their confidence during vendor negotiations. Finally, we’ll offer additional resources for procurement negotiation training.
- Procurement negotiation basics
- Tips and best practices for successful negotiations
- Resources for procurement negotiation training
Procurement negotiation basics
What is procurement negotiation?
Procurement negotiation is the process of defining mutually acceptable terms between a buyer (procurement) and a seller (vendor). Communication often goes back and forth between the two parties until they reach an agreement.
As part of the procurement cycle, negotiation happens after vendor selection but before signing a contract. While not always the case, ideally, negotiations happen before writing a contract to avoid drawn out rework and redlining. In addition to happening at the beginning of a vendor relationship, procurement may also renegotiate terms prior to contract renewals with existing vendors.
Common negotiation points
While nearly anything can be negotiated, these are common considerations:
- Contract length
- Payment terms
- Contract volume
- Delivery/implementation timing
- Vendor performance metrics
What items you negotiate will vary based on your project and your organization’s needs.
Key negotiation skills
In procurement, negotiation experience is highly sought after. Successful negotiation requires a mixture of procurement expertise, soft skills and emotional intelligence. Here are some of the primary skills and traits that make a good procurement negotiator:
Communication and collaboration
Knowing what to say and when is a key part of successful negotiation. Being able to clearly communicate your needs, goals, values and requests is crucial. In addition, the ability to persuade often comes in handy for vendor negotiations.
Research and organization
By nature, procurement professionals tend to be highly organized, skilled researchers. When it comes to preparing for negotiations, these skills serve them well. Research and attention to detail are essential in every phase of procurement negotiation, from gathering competitive intelligence to exploring market trends.
Creative problem solving
Negotiation isn’t always straightforward. Often, you’ll need to weigh multiple considerations and factors. At the same time, you must look for ways to secure favorable terms that the vendor will agree to. In this situation, the benefit of a positive attitude and a little creativity can’t be overstated.
Ultimately, the goal of negotiations isn’t for you to win, it’s for everyone to win. Indeed, ensuring that agreements are mutually beneficial ensures longer-term, more productive partnerships. That’s why the ability to empathize with your vendor is so important. Not only does it encourage collaboration, it also helps to build your reputation as a fair, reliable negotiator.
Sourcing managers must always keep the overall procurement strategy top of mind. The ability to focus on the end goal as well as the overall impact of the vendor relationship is vital to success. It’s important not to get too hung up on details that you forget the overall goal all together.
Advantages of negotiation in procurement
The goal of procurement negotiation is to bring the buyer and seller together to create a mutually beneficial agreement. Benefits often include:
- Reduced costs – Agreeing to a lower price
- Increased value – Including additional features or services
- Accelerated timelines – Speeding up the vendor’s time to value
- Reduced risk – Establishing processes and procedures to ensure success
- Improved performance – Defining vendor and buyer expectations
Tips and best practices for successful negotiations
Define your goals
Before you begin negotiations, it’s important to clearly define your goals. Be as specific as possible. Rather than vaguely wishing for the best possible deal, establish deal-breaker factors. For example, what is the latest acceptable date for implementation? Or, what is the maximum acceptable price per user? It can be helpful to use your RFP evaluation criteria to guide this process. Essentially, make sure you know what you’re trying to achieve to avoid prolonged negotiations with minimal gains.
Understand their goals
Similarly, it’s helpful to understand the supplier’s motivations. For instance, if they’re trying to maximize revenue, they may not be flexible with price. However, they may instead be able to offer additional features, faster delivery or discounted services.
Often, vendors are friendly with several contacts throughout an organization. As you conduct the RFP process and subsequent vendor negotiations, it’s crucial that internal stakeholders direct contacts to work through procurement.
Centralizing communication in an RFP management system promotes a fair and transparent process while ensuring proper documentation. Additionally, when information flows through procurement, it ensures that stakeholders don’t accidentally tip your hand ahead of negotiations.
Keep participants confidential
While it’s okay to let vendors know you’re entertaining offers from other parties, it’s best practice not to disclose which ones. Chances are good that they’re familiar with their close competitors’ strategies, so, it may give them an unfair opportunity. This is why using RFP software with vendor scoring visibility settings helps to level the playing field.
Practice patience (if you can)
If you have some flexibility with your RFP timeline, it may be advantageous to schedule negotiations near the end of the month, quarter or year. You will almost certainly get a better deal because salespeople are more empowered to offer discounts. However, only use this tactic if you are able and ready to make a purchase within the given time frame.
Stay professional and courteous
While this process may feel adversarial, remember that the ultimate goal is to strike a deal and work collaboratively with the vendor moving forward. So, it’s important to stay level headed and professional throughout the process.
Clarify next steps
At the end of each conversation, make note of what was agreed upon and what points still need to be settled. Send a recap to all parties that details who is responsible for next steps. Does the vendor need to confirm timelines with their team? Do you need to discuss functionality with stakeholders? Be sure to note these items as well as the next deadline.
Have a backup plan
Unfortunately, negotiations don’t always result in an agreement. This is why it’s important not to send out vendor rejection letters until you have a fully-negotiated and executed contract. Procurement teams often refer to their backup plan as the ‘best alternative to a negotiated agreement’ (BATNA). Leave yourself options in the event that your negotiations with your first choice end in a stalemate.
Need to send out vendor rejection letters but don’t know where to start, download this helpful template.
Resources for procurement negotiation training
Training courses and certifications
If you thrive in a traditional, structured academic environment, this eight-week course from Michigan State University is a good option. The program focuses on developing a deeper understanding of the how and why behind procurement negotiation practices. Ideally, this allows you to more confidently apply the principles to your unique needs.
Designed for procurement teams by negotiation experts, this training course is customized to meet your specific needs. Rather than covering everything, this option enables you to focus on, learn about and practice the skills that will offer the biggest benefit. SAB offers both fundamental and advanced topics.
A less formal but structured option is this course from Udemy. Online and self guided, you can work through the lessons at your own pace. The class offers best practices for negotiation preparation and execution.
Reading and research materials
Written by Jonathan O’Brien, this book offers a step-by-step, results-driven approach to negotiation. With a heavy focus on preparation in advance, you’ll learn how to assess the sales team, consider their concession strategies and account for any cultural influences.
At just under 25 minutes, this video podcast offers a quick overview of procurement negotiation. Presented by CIPS, it presents strategies and tips for success in the current market.
While this white paper explores a range of procurement skills, it touches on the importance of procurement negotiation. The research includes both interviews and surveys about desired procurement skills.
When discussing negotiation, the paper summarizes, “In reviewing written data, it became evident that most firms are trying to get their employees to develop negotiation strategies that satisfy both parties and produce lasting agreements.”
Available for CIPS members, this toolkit includes a wealth of resources. For example, you’ll find helpful worksheets, checklists, negotiation strategy guides and more.
It’s important for procurement practitioners to stay up to date on the negotiation and sales tactics vendors may use. This article from HubSpot offers advice to sales teams on how to negotiate with procurement. Indeed, this perspective will enable you to skip the games and get down to business.