Information-Based Negotiations - A Different
Approach to Negotiations in Purchasing
An information-based
negotiation is a radically different approach to negotiations. It emphasizes
deep knowledge of the supplier and their industry. It transgresses from some
traditional approaches to negotiations.
It is not the adversarial win-lose negotiation style with the emphasis
on game playing, theatrics and taking full advantage of a supplier’s weaknesses.
An information-based negotiation is not the win-win model either. Information
or knowledge is power, but in information-based negotiations the purchasing
professional gains a deep understanding of the supplier’s industry, their
margins and their culture. In essence this is an immersion or empathy with the
supplier and their competitive landscape. The best way to describe it is that
the purchasing professional knows as much or more about the supplier and their
industry as they do!
In my recent book Common Sense Supply Management I
state, “The very best piece of negotiations advice I ever received was to know
the capabilities of your supplier, their industry, their competitors, their
cost drivers, their margins and their capabilities better than they do. It
requires a lot of homework, digging and flat out work. You obviously cannot do
this with every supplier only the most important and most strategic ones. It is
a powerful negotiation tactic based on knowledge not histrionics. There is no
glamour in the information-based approach it requires immense research about
the industry, the suppliers financial condition and competitive forces. Understanding
their culture and their organization is critical. You are in essence trying
your best to put yourself in their shoes, and mimic as best as possible their
anxieties and fears about the whole process. The information-based approach is
not for the faint hearted or those who do not want to persevere. It should only
be exercised for critical materials or services. It requires ongoing market
research and it will work better when executives are actually exchanged with
the supplier on their site. The resources and commitment to pull off such an information
based approach are significant.”
With the Internet the
gathering of information for the information based negotiations approach has been
greatly facilitated. There are numerous industry reports, websites and search
engines that can help the purchasing professional. Nothing beats personal
face-to-face contact and dialogue with numerous suppliers in a particular industry. They all have a fairly keen knowledge of
their competitors which can rapidly improve your overall knowledge. Since many industries are oligarchic in
nature, once you understand the top three or four players in the industry you
have a real good foundation from which to start partnerships with your chosen
supplier.
I suggest the
purchasing professional consider using the Porter Five Forces analysis. Although
this used extensively in marketing and marketing analysis, it can be invaluable
to the purchasing professional. This will provide a good start for industry
understanding. Another good source for
information about suppliers and particular industries are distributors. Often they are glad to provide information about
suppliers and especially their customer service. Here is a general diagram of
the approach to information based negotiations that I have used:
One additional tactic I have successfully used
during the initial trust building phase is to mutually do supply chain process mapping
of internal processes but with a twist. The supplier comes to your site and
maps your processes, then presents it to your cross functional team to check their
understanding. Then the purchasing professional ventures to the supplier’s site
and performs a similar mapping. Often this sparks a new creative exchange of
ideas. The information-based approach has tremendous flexibility to cope with
market and industry changes. Information
drives decisions not emotions or one-upmanship. It requires the purchasing
professional to become the resident expert on a market and an industry. It yields
much more significant long term gains than traditional or even win-win approaches.
Using this approach is one of the best methodologies for transforming your
supply chain and developing true breakthroughs with your supplier.
Tom DePaoli
Dr. Tom DePaoli is the Management Program
Director at Marian University in Fond du Lac, Wisconsin, and the Principal
(CEO) of Apollo Solutions (www.apollosolutions.us) which does general
business consulting in the supply chain, Lean Six Sigma and human resources areas. Recently he
retired from the Navy Reserve after over 30 years of service. In other civilian
careers, he was a supply chain and human
resources executive with corporate purchasing turnaround experience and Lean
Six Sigma deployments. He is the author of: Common Sense Purchasing, Common Sense Supply Management and Growing up Italian in the 50s.
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