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The changing art of procurement negotiation

Research from Barclaycard Payments, a UK provider of B2B payment solutions, reveals that while skilled negotiation is as important as ever, businesses must adapt their approach to avoid a lack of data preventing them securing the best procurement deals.

The study, among over 500 senior procurement decision managers, reveals that despite supplier negotiation being regarded as an ‘art’ by seven in 10 (70%) respondents, many believe it will increasingly be conducted digitally over the next five years (68%).

While nearly twice as many decision makers aged over 55 prefer face-to-face negotiations compared to 18-34-year olds (62% vs. 33%), the newest generation to enter the workforce are already embracing technology, being over twice as likely to use a supplier management portal to aid negotiations (24% vs. 10%).

Decision makers aged 18-34 are also a third more likely to believe improved technology, such as supplier management portals and video conferencing, would enhance their negotiation ability (43% vs. 29% of over 55s).

However, regardless of the method used, decision makers are in agreement that having access to data and insights during discussions can significantly benefit the outcome: nearly eight in 10 (78%) believe data analytics are increasingly important in supplier talks. This trend looks set to continue, with 66% believing that data analytics will overtake people skills in future supplier negotiation.

Almost half (46%) of decision makers admit to a lack of confidence when it comes to negotiating face-to-face effectively: 53% for women and 43% for men. Of those who feel they haven’t been able to negotiate effectively overall, the main cause cited was not having access to enough data. Reassuringly, investment in upskilling employees in this area is a high priority, with businesses planning to spend a fifth more on negotiation training this year compared to 2019.

Commenting on the findings, Paul Fisher, programme director of the Oxford Programme on Negotiation at Saïd Business School, University of Oxford, said: “While there will always be a place for frank, face-to-face communication with suppliers, it’s clear that the art of negotiation is evolving as a new generation of decision makers take the helm. Ultimately, what’s true across the board is that having accurate, timely and historical data - both internally and from your negotiation counterpart - is absolutely crucial to a mutually successful, high-value outcome. Indeed, the report shows that a lack of data could in fact be holding people back from securing the best possible deal. Get your negotiations right and it can have a huge impact on the bottom line and future profitability.”

Top tips for procurement deals

So how can businesses ensure they are getting the best possible deal? Here are Paul Fisher’s tips:

1.     Find out as much as you can about your negotiation counterpart. Negotiation is not a competitive sport and the more you can put yourself in the other side’s shoes and find out about them - understanding their pressures and influences - the more likely you are to create value at the negotiation table.

2.    Prepare. Many negotiations fail before they get to the table. Find out about your counterpart, research industry benchmarks, leverage data analytics, secure your internal mandate, agree on goals and put in place an effective negotiation strategy.

3.    Negotiate the process. Where should we meet? What is on the agenda? What are the logistics and timelines? Negotiate an effective process and you are more likely to get a durable agreement.

4.    Separate the people from the issues. There are two core elements to any negotiation - people and issues. Don’t let one destroy the other. For example, don’t let your personal opinions towards your negotiation counterpart impact the negotiation or the difficulties of the issues impact personal relationships.

5.    Think interests, not positions. Setting out rigid positions at the outset of a negotiation makes it difficult to be flexible. Instead, think of the interests that underly these positions. Ask the question ‘why’.

6.    Remember that people can see the same issue differently. Each side often has multiple and varying interests, some of which are of high value to attain and others which are of low cost to give away. It’s through each party trading on these differences that real value can be generated.

7.    Make sure you have an alternative away from the table. The better your alternative to a negotiated agreement and your willingness to walk away, the stronger your negotiation position at the table.

8.    Don’t be afraid to make the first offer. People adjust, rather than create, when making decisions. Therefore, making a first offer can have a strong impact on the negotiation - a tactic known as ‘anchoring’.

9.    Face to face negotiations are preferable but make sure you adapt to different communications channels. There’s no substitute for looking your negotiation counterpart in the eye and building relationships. With time and cost pressures, however, more and more negotiations are taking place via emails, video conferencing and WhatsApp. Make sure you are flexible in your approach to adapt to different scenarios. With email negotiations, for example, leverage the benefits of clear records of offers, counter-offers, and the ability to leverage data to back up proposals.

10.  Don’t forget the people away from the table. They can have a major impact on both obtaining a deal and the durability of the agreement. A stakeholder management strategy, and the identification of potential supporters and obstacles to the negotiation, can be crucial.

11.   Remember - negotiation isn’t a natural gift. It can be taught and learned. Natural born negotiators are few and far between. The best are self-made, and improve with conscious effort and training, practice and using the key principles above.

 

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This item appears in the following sections:
Payments - Disbursements
Accounts Payable Management
Paying Suppliers
Trade & FSC Management
Cash & Liquidity Mngm in Europe
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