Preparing for a negotiation - 4 mistakes

Preparing for negotiations. The boss's perspective.

Many bosses assess negotiation skills members of their team based on the course of the negotiations themselves, appreciating the dynamics, assertiveness, tactics and style of negotiations. Often, the less feisty individuals are rated less highly, even though they achieve similar results and, in the long term, build better, healthier relationships with their suppliers or clients. Such people know that preparation for negotiations determines 90% the success of substantive negotiations. Being well-prepared and having a well-worked-out negotiating partner, there is no need to make up for it with tactics, improvisation and stardom. Depending on whether the industry in which we operate is relationship-oriented or transaction-oriented, negotiation preparation and its quality can have a significant impact on the achievement of an organisation's annual objectives. 

Here are four mistakes you can make when preparing for negotiations. It's worth checking if your people are making them, which affects your department's bottom line and the quality of your company's relationships with external partners.

Mistake No. 1: defining negotiation parameters too narrowly

Negotiation parameters appear to be something natural, arising from the requirements of the tender enquiry. The project team or the buyer himself spends a lot of time preparing the scope of the enquiry, which will help to objectively (apples to apples) compare the offers presented by the suppliers. Ultimately, after several rounds of enquiries or negotiations, the best cost- and technical offer is selected. Narrowing down the discussions only to the scope of the new project can make negotiations more difficult, lead to a stiffening of the position and the emergence of an impasse. In such a situation, it is worth thinking about broadening the negotiation horizon to maximise the benefit for your company.

Example:

The production company already uses five machines from Company X. The first machines were installed at the plant seven years ago. Currently, the logistics and purchasing director is in the process of tendering for the purchase of two additional machines worth two million PLN. Supplier X's competitors are pushing hard and are 4% cheaper than Supplier X. Supplier X is no longer able to reduce the price of the new machines any further, as it is blocked by guidelines from the head office in Germany. 

The production director is pushing hard to buy machines from supplier X as he already knows their reliability level and does not want to increase complexity on maintenance. The finance director is pushing both to come to an agreement and make a cost-optimal purchase. How can expanding the number of negotiated parameters affect stakeholder satisfaction?

The Director of Logistics and Purchasing, in consultation with the Director of Production, can introduce two additional parameters into the negotiations to bridge the 4% difference in the price of new machinery, e.g:

• updating the automation and software of the five machines currently in use to the latest version
• extension of the warranty support for current machines by 12 months
• two-year free subscription for preventive remote monitoring of all machines by the supplier

An improvement in the O.E.E. (Overall Equipment Effectiveness) of already installed machines by up to 1% can completely change the competitiveness of supplier X to purchase two new machines. Even if they are still 4% more expensive than the competition.

Error No. 2: Failure to specify the weights of individual negotiating parameters

Even when we correctly prepare a list of negotiating parameters, we rarely ask ourselves questions:

• which parameters we care most about, 
• which parameters our supplier may care most about 

This type of juxtaposition allows you to be well prepared for so-called concession trading (exchange of concessions) in conditional offers. If one parameter, e.g. the service delivery date, is very important to both parties, this is a conflicting parameter. Obtaining agreement on this parameter will be difficult and will most likely require compensation on another parameter, e.g. price, tranches, contractual provisions on liability. 

Our analysis may also include parameters that will be of little relevance to both parties, such as the possibility of providing a written reference and inviting another client for a reference visit. It will be a mistake to give away such parameters “for free” or to combine them with other parameters that are not relevant to us. It is better to use them as a benefit to the other party in exchange for things that are important to us, e.g. a price reduction or an accelerated service delivery date.

Example:

Imagine a situation where, working in a healthcare company, we are negotiating the preparation and implementation of a dedicated set of process robots (RPA) for our AP (supplier invoice processing) process. Our internal objectives are:

• reduction of invoice processing costs
• a reduction in the number of staff required to ensure continuity of the process
• increase in the rate of timely payment of invoices
• reducing the risk of fraud

We have received offers from several potential partners using licences from the same solution providers. What may not be an important parameter for us but may be an important parameter for some of the potential suppliers:

• for a partner who has not yet carried out any projects in the medical field, a reference or reference visit may be an important parameter in return for a reduction in price or implementation time
• for a partner who has received EU funding and is accounting for a return on investment, completing the project by a specific date may be important in exchange for extending the scope or invoicing one of the foreign business units instead of the Polish legal unit of our company

Mistake No. 3: relying on routine and overestimating your experience

The experience we gain in our working lives can be both our ally and a threat to ourselves. Over the years, certain things seem obvious to us and the outcome of interactions known in advance. In our minds, which are fond of convenience, patterns prevail, our personal “business autopilot” is switched on. What might be the consequences of this?

Example: 

The dynamics of a powerful crisis such as the COVID19 pandemic are very quickly verifying our experience. In the period March-April 2020, protective masks (e.g. surgical masks, K/N95) used by medical services and employees of practically every company became a necessity good in Europe, among others. During September-October 2020, nitrile gloves became a scarce commodity. Drawing on the experience of the “quiet years”, buyers began to gather information from subordinate business units on needs, consolidated quantities, and started tender processes hoping for lower prices in exchange for larger quantities. All these activities consumed time, and demand piled up in the blink of an eye consuming especially the capacity of the ailing air logistics. Once the buyer had secured quantities and price, he very quickly realised that the more important negotiating parameters were the logistical availability of aircraft and logistics rates. The prices of the masks or gloves themselves receded into the background. Experience failed, smaller batches in more frequent deliveries often proved to be the better option.

Mistake No. 4. inadequate preparation of project team members for negotiations

Preparing all stakeholders for negotiation is particularly important in indirect production purchasing (indirect) and project-type industries, where the specification is a product of supplier competence and end-user needs. Technical people who are not used to negotiating often have a problem with what we might call fairness/fairness in negotiation. People who rarely negotiate may perceive overstating negotiation expectations or specifying negotiation openings and departures as lying or acting unfairly towards the supplier. Failure to engage such individuals in the process of preparing for negotiations and familiarising them with the strategy can have disastrous consequences for us as negotiators. It can also cause serious conflicts between the purchasing department and, for example, the design or IT department.

Example:

One technique from the backdoor sales repertoire often used by salespeople is to ask questions and verify the information received with several sources. The non-commercial people on our negotiation team often do not see the risk in answering the sales person's questions directly. Usually, the salesperson will convince the technical person that this particular information is necessary for them to build the best, most advantageous offer. Indeed, this is often the case, but not always. What information can the vendor verify with the technical departments:

• What other companies are you considering?
• What budget do you have for launching production or preparing a demonstrator?
• Do you have a problem, or is there anything else we can help with?

Answering any of the above example questions too openly can prevent a favourable negotiation outcome. It is important to remember that technical people do not act in bad faith, it is salespeople who use social engineering to gain an advantage in negotiations.