Author: Larry Berglund
Of all our interpersonal skills we can improve, negotiation is one of the best to focus on for supply chain professionals in the public sector. Procurement in the public sector can be characterized as being reliant on public tendering. While public tendering is a commonly used tool for attaining prices, there is more going on behind the scenes before the tender is issued.
Internal partner negotiations
The players on our own team, often set expectations which are unrealistic or may be indicative of a poor practice. If the CFO does not support disclosing the budget for a project, then those suppliers which respond to an offer cannot be as certain of the expectations and are left to guess work. Any risks are built into the proposals, favouring the seller. If proposals exceed the budget, the process may need to be cancelled or begin all over again, wasting all the player’s time. This is a potential situation which should be defused. The procurement lead needs to present the case to allow for budget disclosure which will actually create competitive tension and encourage proponents to respond accordingly with better proposals within expectations. Using an NRFP with budget limits clearly stated, invites innovation for all parties to consider.
Emotional intelligence is part of the negotiation tool box. Managing one’s emotions and assessing the emotions in others is a critical skill set. Psychology is a component in every negotiation. Where individuals feel that their side of an issue was listened to fairly by team members, and yet the team opts for another direction, the same individual will support the team’s final decision. This builds relationships and contributes to a positive morale.
Procurement can lower challenges in processes by suggesting options rather than directly confronting end users. A fleet manager says that her department needs to buy a new electric vehicle and has done the research in advance and wants a popular brand of a 1-ton truck. Procurement’s negotiation options are still available. Lease-to-own; pay-for-use; purchase outright; trial a new manufacturer’s prototype e-vehicle at no charge for 6-months; wait for new inventory of models for better selection and pricing; select a used model; and a host of other considerations. Entering into a negotiation with a predetermined outcome (buy a new truck) reiterates the point of need versus want.
This is where procurement can be seen as a resource to the fleet manager. When a fleet manager is spending their time doing the work of a procurement person, this isn’t good use of their time either. Procurement, as a negotiator needs to earn its place at the table. Don’t be seen as a road block but more of a stepping stone around a perceived barrier. Help others be successful by providing support and being their proxy representative in the market.
If procurement determines through discussions that the fleet manager only needs an extra vehicle for a specific period of time but wants to add to the size of the fleet, that information can be a game changer.
Information sharing by players, supposedly on the same team, often comes with hidden agendas. Good negotiators separate the needs from the wants and find out what is necessary to make a deal or where there is more input required. Hidden agendas come in a variety of forms, including: the padding of a budget where surpluses are retained by the end user (equity issue); a departmental benefit without an overall organizational benefit (self-serving issue); an internal political advantage without an operational improvement (power issue); my budget, my rules (authority issue); I’ll support you, if you support me (relationship issue); there is only one supplier with the quality we need (bias issue); or I’ve got bigger fish to fry (competing interest issue).
Internal negotiations
Debate is healthy in negotiations. Uncovering differences in opinions as team members develop their input helps identifies where the barriers or enablers may lie. Discussions can ensure how the other side may respond to a negotiation, bid offering, or other form of competition. The stages of a team forming, storming, and performing makes a lead negotiator’s job that more challenging. Ensuring an objective airing of the issues and making the judgement to adopt a specific strategy is an onus on the leader. This means not rehashing of old arguments already closed and having the team move on. Rearguing moot points undermines the collective efforts of the team and becomes dysfunctional.
External partner negotiations
While internal negotiations can be a challenge, external negotiations raise the stakes. Private sector sellers have a vested interest in winning a contract. These individuals tend to have more skin in the game and may have their income tied to performance. All deals must be treated as professionally as possible for accountability.
Pareto’s law suggests that the public side needs to prioritize each spend and apply its resources and efforts accordingly. The proverbial even playing field seldom exists. Where one party has a potential remuneration to gain (seller), while for the other party (buyer) it’s just another one of many orders to process, this intrinsic advantage skews the results in favour of the seller. The sales organization’s incentive strategy is a critical component taking place behind the scene but is in play at the table.
Leadership needs to ensure that the people doing a deal have a sincere stake in the outcome. Knowing that the seller may receive an incremental increase in income personally, is advantageous to the buyer. Not to be exploitive but to leverage the availability of the options in play. Confirm delivery, price held for a period of time, order now with delivery later, installation included, and so on.
The Next Level Experience is an asset but we should be cognizant that passion beats experience. Being able to present an idea or counterargue effectively changes mindsets and achieves breakthroughs in the status quo. Being aware of the nuances, subtleties, and tacit knowledge when doing deals is the reason to develop one’s negotiation skills. Take your skills to the next level.
Disclaimer: The views and opinions expressed in this article are those of the Subject Matter Experts and do not necessarily reflect the official policy or position of The Procurement School.