The Art of Negotiation
by Bruce D. Caldwell, C.P.M.
Vice President, CAPM

The art of negotiation is a life-long learning experience. How well a Purchasing professional negotiates with a supplier base for goods and services has a direct effect on the company's profits as well as its ability to service the needs of its customers.

To enter into and complete a successful negotiation session with a supplier, you must first prepare yourself for the negotiations. How well you prepare will decide how beneficial the outcome will be. In your preparation, identify your goals and rank in order those from most important to least. In rank ordering your objectives, identify what items would be deal breakers and what items you would give up to obtain your objective. Successful negotiations sometimes require give and take on your part.

Knowledge is power; the more knowledgeable you are about the product/service and vendor with whom you are negotiating, the better your position in the negotiations. Knowing the percentage of vendor sales your company purchases make up has a bearing on the negotiation. If your purchases make up 5-10% of the vendor's sales, you will be in a very strong position from the beginning. If your purchases are negligible to the vendor, the vendor will have the advantage. Further knowing when the vendor's fiscal year ends can have an advantage. If the purchase you are negotiating is a large-dollar capital item, that will make the sales plan for the vendor or salesperson, this can work to your advantage. Always place yourself in the vendor's position and ask, "what is their motivation to make the sales?"

I have only hinted at a few items that a Purchasing professional would look at prior to negotiations. Negotiation strategies are not cut and dry and vary with product, service, vendor, and company. One key point to remember is that everything is negotiable. A great book on the subject is, The World of Negotations: Never Being a Loser, by Peter L. Grieco, Jr. and Paul G. Hine.