The goal of every procurement team is to acquire the goods and services that the organization needs from the optimal vendor with optimal terms. They are tasked with translating another business unit’s needs into a streamlined purchasing process – which often means RFIs and RFPs to narrow the field and eventually compare “apples to apples.”
While all of this is happening within an organization, vendors are looking to maximize their opportunities – by circumventing RFPs, trying to deal as much as possible with the business unit client rather than procurement, and generally using any other tactic that can provide them with a leg up. While sometimes these three stakeholders work together efficiently and effectively, there are also times when the business unit does not feel in control, the vendor feels they are not able to fully differentiate and add value( often due to lack of direct access to their client), and procurement is stuck in-between trying to please both parties in addition to hitting their own budgetary goals.
Having worked with sales and procurement teams all over the world, we have seen this play out countless times and as a result our training provides tools and skills that will lead to outcomes that satisfy all the stakeholders involved (win-win-win). Yes, vendors are looking to maximize profit, procurement is looking to reduce costs, and business unit clients are looking to achieve their objectives – but there is more to it than that, and, all three are possible. Too often people are discouraged and make the assumption that price is the only or most important aspect of a purchasing agreement – in our multiple decades of experience, this is usually NOT the case. Most procurement strategies are much more complex than “give me your lowest price.” As a matter a fact, we believe there are three core drivers to all business decisions in addition to specific objectives that vary – making more money/profit, reducing cost, and/or reducing hassle/risk.
Quick Tip for Sellers and Procurement Professionals: Do not overestimate your weaknesses or underestimate your strengths. We often hear from sellers that procurement agents do this for a living and have the upper hand and conversely we hear from procurement agents that are scared to go up against sellers who know their produce and the market better than they do!
Purchasers may have vendor management initiatives/objectives, be focused on “green” or other environmental vendor practices, be looking to implement risk management strategies that prioritize sole-source agreements, or even be mandated to consolidate their accounts for additional efficiencies. Suppliers who focus solely on price miss out on leveraging some of the other interests which are a reality in today’s procurement environment. Procurement professionals are also beginning to realize that to receive the promised level of service, quality of product and efficient delivery of goods and services, that there must be a ‘win’ for the supplier beyond volume sales. Or, put differently, organizations are starting to realize that if they push a vendor too much on price and squeeze them to tight, the vendor may not be able to afford (or wish) to provide the quality and service the organization desires, not to mention not be willing to help out in a pinch.
Given the uniqueness of procurement negotiations, SNI has a custom program that specifically focuses on training either procurement teams to negotiate or teams that sell into procurement. Here are some of the critical aspects of these programs:
The only full-proof way to increase your chances of success when negotiating, whether you are on the sales or procurement side, is to prepare thoroughly for the negotiation from BOTH sides’ perspective. You should look at past deals with similar requirements (precedents) and use those precedents to generate as many alternatives as possible prior to submitting a bid. You have to consider what all of the potential alternatives are for the other side and prepare ways to neutralize or counter those precedents and alternatives that may be negative for your side. It is also important to prepare questions about interests beyond price, so you can continue the process of preparation once the dialogue is underway. Consider deadlines, strengths and weaknesses as well as having a firm strategy for your ‘offers’ – starting with the highest reasonable goal and, perhaps just as important, a walkaway point (where the best deal for you is ‘no deal’).
On the sale side, prepare a strategy that will help you differentiate yourself. We often advise clients to try to get ahead of the RFP process, have a different line of communication with the client that does not bypass procurement (as that would frustrate them), or even share some concerns or add value if you can provide advise on the RFP process. For example, we landed a contract to train hundreds of procurement professionals within a Fortune 100 client because we were willing to go out on a limb and share why their desired RFP result was not optimal – we felt they were approaching their negotiation training in a way that was problematic and we took the risk to share why we felt that and how it could be done better. The client and procurement team both saw the value in our recommendations and as a result decided to select SNI. (multiple bids? And non-conforming bids)
Having trained several of the largest procurement and sales organizations in the world we consistently find that:
- Procurement professionals are excellent problem solvers but often go line-by-line in negotiations rather than stepping back and starting with the big picture.
- Salespeople tend to do want to “talk their way into it” rather than focusing on listening and truly understanding the other side.
So, we teach procurement to not go term by term in the Master Services Agreement and start with the interests of each party. And, we teach sales to have a list of questions ready to make sure they are in ask / learn mode, rather than tell mode, at least early on.
There will also be time to return to the MSA / provide a detailed proposal, but give both parties a chance to share what they need and where they truly find and can provide value in a potential relationship. We specifically suggest starting with broad open-ended questions such as “What is important? What else? What else?” getting all of the major drivers on the table before then delving into which is most important and why.
In general, all parties should consider using probing encouragers such as ‘tell me more’ or ‘go on…’ can open up the dialogue as well. The most important thing is to probe and listen – for what is said and what is NOT said. This makes it less likely that you are relying on assumptions but rather you directly asked the question and truly know what will drive the decision.
For those selling into procurement, don’t forget to ask questions around the timeline and decision-making process if they are not provided. These can be helpful down the road to refer to and avoid surprises. Keep in mind that asking questions that differentiate your approach are very impactful. Great questions not only provide you with valuable information they also can demonstrate to the other party that you truly understand their business, have their best interest in mind, etc.
Sometimes procurement processes limit the amount of direct inquiry and conversation around bids, which is specifically designed to minimize bias and maximize objectivity in the bidding process. This can make preparing a winning bid daunting (for both sides).
There are certainly some negotiation strategies that should be considered by procurement teams when setting up RFIs and RFPs, however, for the most part, the ownness is on the selling party at the response stage, so this section will focus on that side of the table.
What do you when you are being commoditized in a bidding process? Unfortunately, you may have to make some reasonable assumptions about hidden needs and then highlight your ability to negotiate on a variety of interests in order to best serve the needs of the organization. When given the opportunity to ask questions in a bid process, make the most of it by preparing your questions ahead of time, writing them down, and rehearsing them with a partner to ensure you have the right words, tone, and order for your line of inquiry. Trust us when we say, these make a difference! If you have any doubts, please stop here and re-read the two paragraphs surrounding the Quick Tip that describes the many priorities other than the price that procurement teams OFTEN have.
In those cases where you cannot ask questions ahead of time, you have to be cognizant of some fundamental rules for making strong proposals:
- Know their process and follow it to the letter. Show respect for their process, while encouraging additional dialogue to build a lasting business relationship.
- Avoid giving ‘ballpark’ offers or ranges. The other side only hears the end of the range that favors them so sticking to specifics makes their life easier (the importance of this cannot be over-rated!), signals more confidence, and ultimately ends up at the same result or better.
- Don’t overestimate your own weaknesses, nor overestimate the other side’s. Both sides feel pressure to perform well at their jobs. Try to meet the ‘unspoken’ needs of making the other side look good when the deal is done. Giving them a ‘win’ so they can report a ‘victory’ is important to the relationship.
- Develop a list of shared expectations for working together. Whether it is being a single point of contact or just checking in on a regular schedule to discuss updates, new needs or concerns, you should balance your concern for outcomes and relationships in order to be collaborative.
- Don’t respond to offers (or ‘asks’) too quickly. The five most important words in negotiation are “I’ll get back to you.” Take the time to consider what has been asked for or offered to elevate its perceived value. Often, it’s not the final outcome of a deal that satisfies, but how the deal is reached that provides satisfaction.