Using Strategic Sourcing to Improve Contract Negotiations Part 2: The Negotiations

3-10-2016 | by Benjamin Fleshman

As your company moves past the analysis stage of your strategic sourcing, don’t make the mistake of assuming that all of the analysis is over. Remember that strategic sourcing is a systematic procurement process that continuously improves and reevaluates purchasing procedures to optimize a company’s supply base and improve overall value proposition. It is a continuous process of evaluation and reevaluation to make sure that your company is getting the best product for the best price possible.

There will certainly still be more information to process as the contract negotiations proceed. Be certain, however, that you have done enough of your homework to come to the negotiations table with an idea of how you want to proceed. When you feel that you have a sufficient amount of information, you can then proceed to negotiating the terms of the contract. These are a few things to keep in mind as you do that.

 

Use the Right Tactic

Going into a negotiation, and knowing what you know about the company or individual that you intend to draft a contract with, you will want to decide which style of negotiation to use. There are five or so typical tactics:

  • Competition
  • Collaboration
  • Compromise
  • Accommodation
  • Avoidance

Not all of these are equally useful in the business world, but it would be wise for your company to be flexible in your contract negotiation style. For example, with a supplier whose products are the only ones that your company can use, you may need to accommodate their asking price. This does not mean, however, that you shouldn’t try to lower that price, or ask for rebates or discounts. It simply means that your company may not be able to simply walk away from the table.

In general, however, there is more than one supplier that can meet your needs. You may need to play hard ball. You may need to be willing to find another manufacturer, if the current asking price is too high and the company you’re negotiating with simply won’t compromise or collaborate with you. You will need to decide which tactic to use based on your research of the company in question.

 

Control the First Draft

Although being the one to write the first draft on a contract may raise your legal fees, it will likely save you money in the long run. When you control the first draft, it allows you to set the initial asking price. When you set the initial price, set it lower than what you are actually willing to pay, but don’t necessarily let on to the other party that this is your intention. This allows some wiggle room for you during the negotiations. The price can climb comfortable for a while, because it is still within the realistic limits of what you are willing to pay.

Alongside this, include in the contract a list of anything you could possibly attain from the other company from the outset. If they agree to your terms, then you’ve just won a fantastic contract. If not, then there is a long list of unnecessary items that you can eliminate from the contract to look like “the good guy” who is willing to compromise. This will help you seem like a reasonable person when you start to make compromises, especially if you do so willingly. Don’t be extravagant in your asking price or initial terms, but don’t be timid either.

If you need help drafting a contract, or storing your current contracts, one of the best places to get help with this is at Concord. Their services will help you draft and negotiate the terms of your contract with ease.

 

Maintain the Relationship

Negotiations do not have to get ugly. In fact, the more pleasant the negotiations, the more successful your company will be in getting return customers. Remember that the person across the table from you has feelings, too, and they are also looking for the best deal for their company. They want to negotiate properly and be able to distribute their products, too.

What this means for you is that you should never descend to do anything that would damage that relationship. Be open, honest, and kind during the negotiation process. Help their company out, even while you’re helping your own. Make some compromises and concessions that will help them see you as a profitable business partner. The better your relationship with your vendors, the better your sourcing experience will be.

 

CLICK HERE for part 1

CLICK HERE for part 3