What part does negotiation play in supply chain management?
It's actually quite simple. If you work in purchasing or procurement, a key part of your role will be to track inventory levels, and order new components, equipment, or raw materials as needed, so your employer can fulfill orders coming in from clients.
This means identifying the best suppliers for the products you need, and negotiating the best deal you can, in terms of price, quality, service, conditions, etc.
In most cases, you'll talk to several different suppliers and compare deals before deciding on who your company will do business with.
The strength of your negotiating skills will determine the final terms of each purchasing deal. Your goal will be to save your employer money while building positive long-term relationships with suppliers (so you'll have a network of reliable contacts to work with during the course of your career).
You've got to make great deals without burning bridges—and this takes a finely developed set of negotiating skills and tactics.
Thinking of becoming a purchasing or procurement agent after supply chain management training?
These are some of the skills you'll need to negotiate successfully with suppliers.
Adapting Your Tone to Gain the Upper Hand
You won't use the same approach for each negotiation. Before heading into talks with suppliers, purchasing agents analyze the situation, seeking to establish three key points:
- what they absolutely must get out of the deal (their employer's "must haves" and "nice-to-haves"; and what they have to bargain with)
- the wants and needs of the supplier (what might he/she be willing to budge on?)
- who has the most leverage (is this the only supplier that has the special component your company needs? Is so, you'll have very limited leverage in this particular negotiation)
You'll need to understand the dynamics of each negotiation in order to strike the right tone, and use the most effective tactics to get the upper hand for your employer. In some cases, it will make sense to be forceful (threaten to drop the supplier if they don't lower prices).
In other situations, it will be more useful to be friendly (remind the supplier that your employer has worked with them for a long time, and deserves a price break). There may be times when you'll suggest your "hands are tied" by management, and you simply can't budge on the terms.
Purchasing agents must go into each negotiation with a strategy in mind, but be ready to adapt that approach if it doesn't seem to be working. They need a strong sense of intuition and the ability to "read" others effectively.
Building Rapport & Establishing Trust
It's true that your main goal during negotiation is to get the best deal for your employer—however, it's important to remember that each contract you hammer out should be fair for both parties.
If your supplier ends up feeling taken advantage of or manipulated, you'll enjoy a short-term gain at the expense of a valuable long-term relationship. One of your most important goals as a procurement or purchasing agent is to build a network of trustworthy contacts—people you can call on when you need a part or raw material quickly, and at a decent price.
You have to be savvy and strategic, without burning bridges. The deals you negotiate should feel like a win-win for all sides.
Procurement specialist, Stefano Petriello (who works for Accedian in Montreal), says that building positive, lasting relationships with suppliers is one of the most important aspects of his job:
"The networks you build in procurement can be life-saving... especially during times when the company is experiencing a shortage of critical components and market supply is scarce.
This is where we really need to hustle, and locate anyone out in the open market who can supply us with stock in a relatively short lead-time.
When it comes to procurement, establishing close relationships with sales reps is key to fulfilling your deadlines."
3. Emotional Control & Listening Skills
As Mr. Petriello points out, there are times when purchasing/procurement agents have their backs against the wall, under pressure to find good suppliers within a short time frame. However, no matter what stress or impatience you might be feeling, it's crucial to set those emotions aside at the negotiation table.
You'll need to stay calm and focussed in order to listen effectively and respond strategically while talking with suppliers. The stronger your listening skills, the more capable you'll be of discerning the supplier's wants and needs, who has the greater leverage, and how to adapt your tone accordingly.
Losing your cool means giving up control to the other party. Effective purchasing agents know how to restrain themselves, and maintain professionalism, even when the stakes are high.
Think you have what it takes to become an expert deal-maker? Interested in learning more about pursuing a career in procurement after supply chain management training?
Take a look at the Supply Chain Management and Logistics Program offered at the Herzing College Winnipeg campus. Click below to explore courses, admission information, career paths—or to chat live with a friendly advisor.
*Prefer to take online supply chain management training? Herzing's 12-month diploma is also offered through our Flex-Ed, online learning format. Learn more below.