Top 11 Negotiating Strategies for Contracts in Purchasing

Top 11 Negotiating Strategies for Contracts in Purchasing

Successful negotiation can mean everything for your business

Before signing any business contract or agreement, you will most likely need to negotiate. That is – sit down and discuss the details of the contract. Your job in purchasing will put you in the negotiating hot seat time and again.

If you’re new at this game or need a refresher – it’s always a good idea to review tried and true negotiation skills and strategies.

Negotiation Styles – Adversarial or Collaborative?

How you approach each negotiation depends on your style. An Adversarial negotiation style is considered old school, as it tends to be based on a lack of trust and the use of ploys to get the contract signed. Comparatively, a Collaborative style tends to create arrangements where both parties are satisfied with the short and long term benefits.

There are many books written on negotiations, and in the past few years, the tide of opinion is turning towards a more collaborative approach. The best way to view this is to consider every negotiation as a problem-solving exercise, where both parties work towards closing the gap between perceived differences and arriving at an agreement.

The following are 11 common sense strategies that have been proven to work when adopting a Collaborative problem-solving approach.

1. Break the negotiation down

An ‘all or nothing’ approach can cause a negotiation to evaporate. By compartmentalising your negotiation into sections, your goal is to reach an agreement on each part. Getting multiple small agreements – or solving each compartment’s problem – often ensures the final deal is a ‘fait accompli.’

2. Depersonalise your requests

In other words, for example, “You’ll see these are compliant with industry/market price standards”. Sticking to facts relieves you of the obligation to justify your position.

3. Separate the people from the position

What this means is that you remove the emotion from the equation. Look beyond personalities for the real issues to open up a problem-solving dialogue.

4. Set the agenda

Be in control of the location, timing, topics, and pace. The party who drafts the agreement is always in the contractual driver’s seat. You can then set the tone and ensure a collaborative environment.

5. Know your priorities

In all negotiations, some areas are more critical than others. Knowing the ranking of each priority prevents you from getting bogged down in lower priority issues.

6. The “Offer – Concession” strategy

Make sure the other party leaves the negotiation feeling they’ve made a good deal. Never enter a negotiation revealing your absolute bottom line. This strategy leaves you room to move, while the other party feels they’ve won something.

A 'Collaborative' negotiation style is more likely to create arrangements where both parties are satisfied with the short and long term benefits. Click To Tweet

7. Question rather than demand

If the other party is taking a hard line, be willing to ask questions to ascertain their reasons. Questions open up discussion, and this will lead to greater understanding – an essential problem-solving tool.

8. Do your research

You’ll always find that the more information you have, the higher your leverage. Knowing the other party’s critical conditions allows you to adjust to the situation. For example, if cash flow is a critical issue, you might agree to a guaranteed payment schedule in exchange for lower profit margins.

9. Focus on points of agreement

An upbeat approach allows you to find opportunities to say, “You’re right about that” or “I agree”. However small these points might be, they help to set a collaborative tone.

10. Use facts not feelings

Successful negotiators separate business from personal. Avoid using “I” statements and focus on statements of fact; “If we pay this price, both parties will be at risk – so how can we come to an agreement that has sustainability for both parties?”

11. Dealing with ‘Walkouts’ and ‘Ultimatums’

Not all parties will operate from a collaborative approach. No matter how well you use your problem-solving skills, there will be times when the other party resorts to threats or wages a war of attrition. You’ll have to decide if the underlying deal is worth it to you. If it is and, for example, the other party is the only supplier, you might have to ‘grin and bear it’. Otherwise, you can choose to walk away and seek out a more collaborative supplier.

Relationships with suppliers are deemed as valuable as those with all other stakeholders. When you enter these relationships, your first actions set the tone for all ongoing interactions. Your willingness to approach communications from your collaborative position sets the expectation for sustainability at every level of the contract. Develop your purchasing skills and develop new negotiation skills with a Diploma of Purchasing (BSB51515).
 

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