Both procurement and sales organizations have been suffering from the same fatal flaw since the invention of currency. And It’s killing us. Our profession is leaving money on the table in every single deal.
It starts really early. When you were a kid in the playground, fighting over a toy in the sandbox. Only one of you can have the toy. You start hard bargaining for the toy, aiming for a winning outcome, resulting in the other child not having the toy and probably crying.
And while still a child, you watched your parents haggle deals, bargaining for a lower price, resulting in the seller making less profit. It was an exercise in negotiation asset transference.
And your parents frequently commanded you to do things with no perceptible gain for you (“Go clean up your room”, “Go take out the trash”, “Turn off that music”, “That’s enough TV”, etc.). It’s what we do as parents. We have authority and we use it.
Then you grew up watching TV shows where hardball negotiators, the hero in the plot, got what they wanted against a hapless negotiation victim, who received no concessions in return – other than the loss of their own humility.
These are all normal experiences, and you had them 100,000x before you finished grammar school. You were fully programmed by this time. And it’s really unfortunate.
Everything you’ve learned from the time you were a kid was focused on PARASITIC negotiation strategy. The movement of value in negotiations. Give up the toy so I can play with it. Give up profit so I can report more savings.
Then one day you got a procurement job where you were supposed to actually do negotiating. And you hold all the cards, because you have the money and the other party wants it. You can do all sorts of things, and the seller has to go along with it. Kind of like the parent-child relationship.
And your success in forcing the supplier’s hand may have nothing to do with your skills at all. They just want your money. Really bad.
And the consultants and trainers are making it worse for the most part, as they are teaching us how to get better and better at parasitic negotiations. Why do they do that? Because that’s what sells. But our body of knowledge is working against us.
I’ll never forget the negotiation training advertisement from a very well-known company that I saw on a plane, showing a businesswoman leaning back in her black leather executive chair, feet up on the table and crossed, wearing smart high heel shoes, and smoking a cigar – while sporting a wry smile. The caption indicated something like “THIS is what it feels like to get an Unfair Advantage in negotiations”.
It saddens me to see that. Is this really an accomplishment? Is that what our profession has come to? Demonstrating excellence in Parasitic Negotiations? Is this how the supply chains of the future will operate? Each supply chain link getting an unfair advantage over the next link?
We’re better than this.
Time to unplug everything you’ve learned, and probably are still being taught.
There is Value Transference and there is Value Creation. Everything we’ve been taught about in negotiations has been focused on Value Transference. Give me the sandbox toy. You won’t have it anymore.
Value Creation strategies find out what keep the suppliers awake at night, followed by the inventing of solutions to help resolve them, in return for a steep discount.
For instance, one of our clients is a major potato chip manufacturer that was at a stalemate in pricing with their biggest potato supplier. They hammered each other for years to no avail. The buyer was extremely frustrated.
The buying company was advised to do Investigative Negotiations. They discovered that while they needed potatoes all year, their supplier only harvested once a year! What a fiasco this must create! They surely thought that this issue must be keeping their supplier awake at night.
The buyer came back with the unsolicited proposal to solve this problem for the supplier – a problem that never came up in negotiations, but the buyer researched on his own. The buyer proposed to shift potato cold storage to the buyer’s facilities, which had capacity for such.
The result? The potato farmer was both surprised and thrilled at this new approach, and was delighted to offer an additional 20% discount to the already aggressive pricing schedule. This after the buyer couldn’t even get 1% in traditional at-the-table negotiations.
When was the last time you had a supplier delighted to deliver a 20% additional discount? There are endless other examples of this that we have seen and worked on with our clients.
The other area of opportunity is driving savings in the actual design of the product or service, BEFORE supplier negotiations. We call this Upstream Design for TCO.
One of our clients is one of the biggest healthcare companies in the US. In looking at their purchase strategies, we found their biggest money on the table was not in pricing, but in what they were purchasing.
We found for instance that they were buying 140 different types of catheters. Their internal medical board, which approved all medical product purchase decisions, was presented with this information and they were so embarrassed and apologetic and promised to fix it.
They then came back with 8 catheters that they would request exclusively moving forward. Reducing from 140 to 8 catheters resulted in dramatic savings from the supplier, because now economies of scale by product improved and order fulfillment, logistics, and inventory management all became much easier.
This was then replicated across many other products they were purchasing for significant savings.
Again, there are endless examples of driving Upstream Design for TCO. We’ve been finding 18% savings on average in such cases, and that’s before going to supplier negotiations!
Do these things well and be the Rock Star in your department, and put your career on the CPO Fast Track.
P.S. Our CPSCM™ Certification Program does a deep dive on Investigative Negotiations, Value Creation, and Upstream Design for TCO. No other program does. Almost 50% of the Fortune 100 have invested in it. Get your department certified or invest in getting yourself certified. You’ll be glad you did.
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