Negotiation Approaches in Procurement – 5 Key Tips

It’s one of the oldest art forms in the world, but that doesn’t mean negotiation doesn’t need an update every now and again. A pandemic, supply chain issues and high inflation have combined to transform the negotiation landscape in 2022. Tactics we once relied upon may be more damaging than helpful, and it’s time we looked beyond the single contract in front of us and at the broader relationship.

Here are my top tips for negotiation approaches in procurement.

5 Tips for Procurement Negotiation in 2022

Don’t be afraid to walk away

You should always be prepared to walk away, no matter how much you’ve already sunk into the negotiation. Don’t get me wrong – you don’t want to do it too often, or you’ll get a bad reputation. But persisting with negotiations that are throwing up red flags can also land you a bad reputation, or worse – a bad deal.

Walking away is an art, not a science.

While it can be hard to walk away after we’ve already sunk money into the negotiation, it can also be hard if we’re under time pressure. If a deal is on the table that seems good and you’re under pressure to accept, it’s tempting to do so without carrying out due diligence. But if you don’t trust the supplier, walking away is the right negotiation tactic. If done correctly, the supplier may come back with a better deal. In any case, you’ll be able to gauge how hungry they are for your business by their reaction.

Again, it’s an art, not a science. Never walk away from procurement negotiations for no reason; only do so when the offer is deficient. After all, no one wants to deal with a buyer who makes empty threats.

Influence, don’t demand

Negotiation is always a balance, so after telling you to be prepared to walk away, I’m now going to caution against overtly aggressive behaviour. Once, when the market was a different place, it was an accepted tactical manoeuvre to bang your hand on the table and demand a cost reduction.

Such ploys won’t work today.

Quite simply, it’s a seller’s market; demanding behaviour will likely cause the seller to walk away considering the number of buyers they inevitably have knocking on their door. Additionally, with high inflation a legitimate concern, the price demanded by the seller may indeed be realistic and fair.

With so little wanted by so many, it’s now the age of the influencer. It’s no longer about the single contract negotiation, but about the broader relationship. Think about how you can become the preferred customer, so that when goods become available, your number is the one they call.

Avoid sliding prices

The sales people who come through your door may offer you a price range that makes it difficult for you to receive the BATNA (best alternative to a negotiated agreement) advantage. So, avoid sliding prices and ask for the lowest price from the start. But, how do you know if you are getting the lowest price? That question offers a handy segue to the next tip.

Transparency around the lowest price

Making savings the be-all and end-all of negotiation approaches in procurement leads to issues, but it should still be a goal. It’s best to be transparent around the issue. Don’t hesitate to inform the vendor that you’ve spoken to others, some of whom have quoted lower prices. Ask the potential vendor to justify their higher prices and, if they can’t, well, they should offer you a better deal.

Prepare, then prepare again, and again…

Good preparation is vital to a procurement negotiation that results in a good deal. Research and preparation on your part not only sets you up well for the negotiation, it’s also a sign of respect for your supplier. You don’t want to waste their time and, if they’re worth their salt, they will have done their research with the intention of not wasting your time. It’s a two-way street.

Additionally, being prepared means wily salespeople can’t take you for a ride, and you’ll be better positioned to compromise. The procurement industry might seem adversarial, but it’s possible (and encouraged) to view your vendors as partners. Your success mirrors theirs, and you need them to be successful so that you can have a stable supply chain. So, compromise when it’s necessary, but prepare well so that any compromise leads to a mutually beneficial arrangement.

Hone your negotiation skills for 2022

2022 has changed the negotiating landscape. Some tactics once relied upon can no longer be trusted, and new priorities have risen to the top. Academy of Procurement has teamed up with skilled negotiators to give you in-depth negotiation training to keep your game up-to-date and effective.  Let’s make some great deals while building long-lasting, mutually beneficial purchasing relationships.