Using Strategic Sourcing to Improve Contract Negotiations: Part 1: Analysis

3-4-2016 | by Benjamin Fleshman

Knowledge is power, especially when it comes to contract negotiation. When your company begins negotiating a contract, you need to analyze everything. That may sound a bit hyperbolic, and perhaps it is, but when you’re in business, it does you little good to be surprised when you go into a contract negotiation. Before you award a contract, you will want to analyze the market at large, the specific spending habits of your own company, and the spending habits of any company you intend to do business with.

 

contract negotiation

The Market at Large

Analyzing the market at large is a simple strategy, but it’s a productive one. Ask yourself general questions first, and then whittle it down to specifics. What forces are driving the market that your company is involved in? What forces are driving the market of your employer?

Those two questions are related, but the answers are rarely identical. Your company goals and direction may have little to do with a supplier’s goals and direction, so you need to understand both sides of the coin. Otherwise, your negotiation strategy will be limited to simply what your company needs. You lose versatility by not understanding the driving market forces for a supplier.

Your Own Business

It’s typically easiest to analyze your own company’s needs first. You need to understand who your main stake holders are, what’s important to them, and what the overall goal is for the company.

For example, let us suppose your company deals with scientific research. You want to make a purchase for laboratory supplies. Ask yourself the following questions: who will be affected by this purchase? What is important to them? If your key stakeholders are the scientists themselves, then are they more concerned with timely delivery, or bulk purchasing? Understanding your own company goals can make a big difference in how your company handles contract procurement.

Next, take a look at your company’s historical spend data. Understand the purchases that you’ve made in the past. How could those purchases have been improved? What areas of the purchase would you do differently in order to maximize cost efficiency? Could compliance have been managed better?  Asking questions like this will give you a good idea of how our company has typically handled negotiations, and it gives you an even better idea of how to handle them going forward.

The Supplier’s Business

It’s a safe bet that a supplier will have historical spend data for your business before they do business with you. You should be armed with specific data for their company as well. Delivery methods, historical spend data, customer satisfaction ratings, and anything else you can find out about a supplier will empower you in a negotiation situation. It will give you a base from which to work, and from there you can begin to negotiate potential rebates, group sales rates, future contracts, etc.

Find out what is important to the potential supplier. If their goals are incompatible with your own, or they are asking too much, then there will always be another supplier. This is the reason that we do analytics in the first place. Remember that you aren’t limited to a single supplier, and that you can always find another vendor. Be strategic in who you select as a supplier.

To learn more, fill out the form on this page to chat with one of our contract management specialists, or call us at 844-693-7446.

 

CLICK HERE  for part 2

CLICK HERE for part 3