How To Negotiate Win-Win Deals with Procurement Professionals
In order to make the most out of procurement deals, it’s beneficial to work with procurement teams rather than against them. While it’s challenging to constantly negotiate win-win deals, there are a few steps to take that can help ensure both parties are satisfied with the agreements made.
Mike Lander, the CEO of Piscari (a London-based consulting firm that specializes in procurement) covers several key points when it comes to closing successful deals with procurement teams.
Who Are Procurement Teams, and What Do They Want/Need?
Mike has worked in mainstream consulting for 25 years and procurement focus for 20 years. When it comes to procurement language, personas, priorities, and tactics of procurement teams, he explains that understanding the teams and individuals you’re interacting with is crucial.
Before negotiating, before an individual sits down for a meeting, he or she should prepare for what may occur during the session. The individual that has researched data and prepared themselves for variables has the upper hand.
Research Data Systems
In discussing data research, Mike mentions Tableau, a revolutionary tool that procurement teams have utilized in order to create visualizations of different data types
By taking important pieces of data that exist on different systems and creating a single visualization of the information, both individuals and procurement teams can take advantage of clear, concise comparisons.
Procurement Language and Research
By using an example, Mike explained the significance of client research and procurement language.
In the scenario, Mike suggests a meeting is to take place between a CLM seller and a client. The seller’s client study may take place via LinkedIn research. For example, the seller may notice that the client’s profile shows a year’s experience in indirect procurement.
However, that client’s history may show 15 years of direct procurement (procurement of direct goods) before the recent year.
In procurement language, a history of direct procurement will likely mean that a difficult negotiation is ahead. Suppliers should be prepared as well as possible for a challenging exchange.
Direct and indirect procurement professionals vary in some senses, but they tend to share some common traits. Procurement professionals tend to be rational, short on time, and decisive.
Direct procurement professionals are likely going to be more aggressive due to the pressure their position places on them.
While indirect procurement professionals share some of the same qualities, they tend to be less aggressive.
Being prepared for either type of procurement professional is key for success.
Understanding Value and Savings
Mike states that when meeting with procurement professionals, suppliers will likely speak with people who already have expectations and a baseline regarding what they want.
For example, if a procurement team already has a CLM system but would like to switch, the representative in the deal will likely already know what features they need and what budget they can afford.
Quoting a certain price for a number of features will likely be met with the procurement professional restating the features they need, but pitching an offer significantly lower than what the supplier hopes to receive.
This opens the discussion regarding what’s doable and what isn’t. This is where value and savings come into play.
Suppliers have to be prepared to meet the needs of the client.
Before meeting with clients, a seller should have several variables considered. This way, they’re prepared for any rebuttals the client has and can address them without taking time to go back to planning a contract redesign.
Sellers need to consider price, contract duration, termination clauses, and payment terms.
A situation that may arise is clients wanting to adjust payment terms. If a supplier offers 30 days but will accept 45 days, a client may insist upon 90 days.
Rather than saying no right away, suppliers may benefit from meeting that need, but expecting something of value in return for the change in terms, hence the win-win consideration.
Difficult Negotiations and Price Chipping
Mike explains a commonly seen tactic that buyers might take when making deals. He presents a situation where a supplier and a buyer have been negotiating for months.
The seller may have been discussing terms for three months with a stakeholder, and an additional month with a buying representative. Two meetings have taken place and the deal seems to be at the final stage. The supplier may be under the impression that everything has been agreed upon and the contract simply needs to be signed.
At that point, a buyer will mention having met with the Chief Financial Officer which has caused an issue to arise. The representative will then state that the deal is off unless the price agreed upon previously changes. The CFO will not sign off on the deal unless the price is dropped. The request may be moving from $250,000 to $200,000 for the same features.
It’s wise in negotiations to politely stop the conversation where it is and ask the buyer if their budget has suddenly been cut. Either this is the case or the buyer is trying to chip away the price at the last minute.
Suppliers should suggest that if the buyer’s budget has changed, the scope of services can be changed to meet the new price demand. However, it should be stated as well that the features included in a new deal will not be the same as the deal on the table.
This gives the buyer options to choose from. Either they can meet the price requirement or will accept different features. From there, the supplier can offer an additional feature if the buyer can make the original price.
For example: “If you can make the $250,000 agreement, I will include reporting free for six months.”
It’s crucial to hold certain offers back until the last minute. Suppliers always want to make sure buyers walk away feeling that they’ve gotten a great deal. Keep something of value off the table until it’s needed.
The Procurement Success Equation.
In summarizing, Mike mentions his Procurement Success Equation where he considers six different variables when examining deals.
At the top of the equation are the following factors:
Finally, each of these features is compared against a final factor: Risk.
Bring these variables into a deal to present both knowledge and value.
Mike’s 3 Key Takeaways
In summary, Mike states that these three simple takeaways will help ensure win-win negotiations.
- Do your homework and prepare for each situation.
- Research the procurement person you’re meeting with.
- Always be prepared for something at the end. Hold something back to prepare for the last-minute chip.