I have more and more clients that are struggling with pandemic negotiations with suppliers who hold all the bargaining power. There’s really only 2 things that can be done to address this:
- Change the bargaining power dynamic
- Drive Investigative Negotiations and Value Creation
Or you can keep hammering the supplier on price, but you are already doing that, and you were doing it before the pandemic too. And right now it’s not working, or you wouldn’t be reading this I suppose.
Changing the bargaining power dynamic comes down to identifying the source of the supplier’s bargaining power, and then taking steps to reduce the value of that source and/or increase your bargaining power in turn.
The end goal of changing the bargaining power dynamics is to create a circumstance where your offer is perceived as being more desirable than it was previously.
I remember something Carlsberg Beer did with their soda ash suppliers (glass bottles are made of 70% sand and 30% soda ash). The sand was plentiful, the soda ash was not. They were dealing with a powerful oligopoly – almost a cartel of sorts.
The soda ash suppliers were dictating the terms and getting them, because there were few alternatives. Carlsberg didn’t know what to do. The source of the supplier’s bargaining power was the oligopoly and Carlsberg’s lower volume.
Carlsberg couldn’t change the oligopoly, they couldn’t use something other than soda ash, and they couldn’t wave a wand and suddenly increase their volume requirements.
Or could they…..
Carlsberg decided to take a disruptive sourcing move and talk with supply chain partners buying soda ash as well. They put their requirements together and went to the oligopoly with a massive volume that was irresistible. All in one take it or leave it contract offer.
Now the oligopoly companies were going head to head for the business and a sweet deal was landed. The bargaining power dynamics, once hard as steel, were melted away and the tables were turned.
This is just one example of how to change bargaining power dynamics. You have to dissect the source of the bargaining power and take moves to undo it.
The other thing you can do is to drive Investigative Negotiations and Value Creation. I have endless client examples of this.
One example is with Tata Steel. Tata is probably the biggest company in India – a massive conglomerate that has no equal elsewhere in the world that I’ve seen. You can’t breathe air or drink a cup of coffee in India without Tata being involved.
They were negotiating with a German mining equipment supplier, the best in the business. The Germans tend to do business cut and dry. They had a hard as steel fixed pricing schedule. Tata wasn’t going to get a single penny deviation from that schedule.
Tata thought about this problem, did some research – Investigative Negotiations – and realized that the mining equipment supplier had zero foothold in India. How could this be? But it was true.
That meant that they didn’t understand how commercia precedents worked in India. They explained to the supplier that the volume at stake was not just that of Tata’s.
They explained that when Tata buys from a given supplier, this is an implicit seal of approval that the entire country of India uses to start buying from that supplier. They then went through a myriad of examples.
They explained to the supplier that whichever company wins this business also wins the whole of India’s mining business. This suddenly made the pie much bigger – Value Creation.
The rigid German supplier came back on their hands and knees with an incredible proposal to win the Indian marketplace. Their first deviation ever from their hard pricing schedule.
Tata signed the deal, whereby the German party made far less money at the transaction level, but stood to gain FAR more in the aggregate from this new marketplace. Both parties were thrilled with the outcome.
That’s exactly how you do Investigative Negotiations and Value Creation.
If you are trying to solve your supplier bargaining power problems with management escalations and hammering the supplier, you’ll lose a lot of hair, but you won’t accomplish much else.
Read this Twice: Doing what you’ve always been doing in negotiations will only deliver you the same results that you’ve always been getting. And that’s not good enough.
Now go off and do something wonderful. Be your best!
Omid G.
“THE Godfather of Negotiation Planning” ~ Intel Corp
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