Adjust Your Negotiation Approach

PurchTips - Edition # 140 November 27, 2007

By Charles Dominick, SPSM

When Should You Adjust Your Negotiation Approach?

The situation you're in should shape your approach to negotiating. Here are some situations that will impact your negotiation approach.

Goods vs. Services. When buying goods, you can generally take a more tenacious approach to negotiation. With services, negotiating can be a bit trickier, particularly when you are negotiating with the person who will ultimately be providing the services such as a consultant, accountant, graphic designer, or similar professional. These individuals tend to take pride in the work they perform and view your attempts at negotiating a better price as a devaluation of their work. They may respond by providing services that demonstrate that "you get what you pay for" instead of giving you their best efforts. So take a firm but diplomatic approach when negotiating with service providers.

Custom Orders vs. Mass Production. When you place a second order for mass produced goods, you probably won't be able to negotiate a much better price than you negotiated for your first order. However, with custom-made goods, you do have a little leverage. On the first order, the supplier probably built 100% of its non-recurring costs (e.g., process design, set up, production instructions, etc.) into the fee you paid. If you end up placing an unplanned second order, the supplier has already recouped its non-recurring costs and, thus, your unit price should be lower than it was on your first order.

Technically Committed vs. Technically Uncommitted. Let's face it. When other people in your organization have worked with a supplier to determine the technical specifications for what they are going to buy and only one supplier can comply with them, there is little leverage that you have in negotiation. So, when other people interact with potential suppliers, your negotiation power depends not so much on how you communicate with the supplier, but moreso on how you prepare your internal team. Everyone responsible for the technical decisions should be advised of these things:

1. No one should share a supplier or specification selection with suppliers until a purchase order is issued.
2. The less certainty a supplier has about getting the business will translate into more price flexibility.
3. Your approach is not necessarily designed to choose the lowest cost supplier but rather to ensure the lowest possible cost for the preferred specifications backed up by compliant supplier performance.

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