Supplier Negotiations: What Differentiates World-Class Negotiators?
World-class negotiators generate up to 3% more EBIT across all functions, according to a McKinsey survey among C-level executives. Realizing the full potential of supplier negotiations is much more challenging today. Getting a good price is not good enough. Negotiators must pursue multiple objectives like security of supply, sustainability, etc., manage supplier relationships and keep internal stakeholders happy.
There are four main differentiators of world class negotiators:
Be prepared for a shift in power balance!
The power balance has shifted and is now often more in favor of suppliers. Relationships are much more important. You need to adjust your supplier negotiation style. Think about how you can become an attractive customer for the supplier. Manage the relationship angle with care. This does not mean being soft. Be tough on the content but avoid antagonizing your counterpart.
Build a relationship to explore the best possible deal. The current environment causes a lot of stress to individuals which makes a notable difference if you can show empathy and try to understand the needs of your counterparts.
Explore the full solution space!
Be open to joint problem solving in the negotiations with suppliers. Explore all options of a deal. This can help unlock capacity across all tiers of your supply chain. You can start with a blank sheet and figure out what works best for both parties which include insourcing, joint ventures, co-investments, or firmer volume commitments and demand forecasts.
Joint ventures of automotive players (Tesla with Panasonic or Volkswagen with Northvolt) with leading EV battery suppliers are a good example. Volkswagen has also bought a stake in the start-up Quantum cape. This goes far beyond their collaboration with traditional suppliers.
Tesla as the industry benchmark is even getting active upstream negotiating with mining companies to get direct access to raw materials and buy stakes in new mines to secure capacity.
“Today is not only a great milestone for Northvolt, it also marks a key moment for Europe that clearly shows that we are ready to compete in the coming wave of electrification.” ― Peter Carlsson, Northvolt’s CEO regarding USD 1bn investment by Goldman Sachs and Volkswagen
Have all the facts on hand!
Be well prepared, gather all the intelligence you can get! Invest in supplier and supply market information. Develop a perspective on the evolution of the supply and demand balance. Assess the impact of investments into new capacities and the emergence of new suppliers. Understand the impact of major cost drivers and changes in exchange rates. Given the dynamics in the supply markets, you will reach surprising insights.
Be brutally efficient!
The number and complexity of negotiations are increasing. Supply chains getting more complex. The market volatility causes more frequent price adjustments, and the need for re-negotiation is higher than ever. Ensure that you can cope with the workload. Ensure that you prepare and execute each supplier negotiation with the right diligence.
World-class negotiators leverage technology to boost their negotiation outcomes. This includes AI-powered negotiation platforms and analytics and research tools to give them an edge over their counterpart.
Do you want to know more about what world-class negotiators doing? Have a look at our negotiations handbook and ask for a demo of our AI-powered-negotiation platform DEALS.