Tips for Effective Negotiation in Procurement

For any organisation to succeed it’s vital that it protects its own interests, and part of that will always be down to negotiating. Negotiation is more than just a skill - it’s an imperative for any organisation. For procurement professionals, it ensures value for money is being delivered, and helps navigate ever-tightening budgets.

In this blog, we’re going to explore why negotiation is so important in procurement. We will take a look at negotiation foundations which will help your organisation succeed, and we’ll also look at overcoming the challenges that a negotiation sometimes brings.

Jump to:

●      Why negotiation matters in procurement

●      Why preparation is the foundation of success

●      Successful procurement negotiation strategies

●      How to overcome challenges

●      Considering the long-term value following a successful negotiation

Why negotiation matters in procurement

It’s easy to think that negotiation is all about driving down the price of the goods or services you’re buying into. But it’s so much more important than that. Negotiation directly impacts the value, quality, and sustainability of the goods and services your organisation purchases. Put simply, it can influence things like delivery schedules, contract terms, service levels, and even innovation.

In the public sector, the stakes are even higher. It’s vital for procurement professionals to demonstrate transparency, fairness and accountability, as part of their compliance processes.

Good negotiation enables buyers to secure not only cost efficiencies but also social value, sustainability commitments, and benefits to the local market, all of which tend to be key objectives of modern public procurement.

Why preparation is the foundation of success

Entering into a negotiation unprepared is the equivalent of going into battle with no armour on. Preparation will be the key to your organisation's success, therefore before entering into a negotiation buyers should:

• Conduct market research - Take time to understand and learn the supply market, identify potential risks, as well as benchmarking prices and (crucially) service levels.
• Create clear objectives - It’s important from the off that you know your red lines. Outline in your strategy which elements are non-negotiable and which you’re prepared to be more flexible with.
  Think about motivations - What are the supplier’s drivers? Are they looking at long-term contracts, or maybe they’re motivated more by cash flow (thus being more inclined to look at discounts, in return for a bigger payment up front).
• By doing research in advance, your organisation is setting the stage for informed and confident negotiations.

Successful procurement negotiation strategies

When it comes to negotiating, you’ll sometimes be dealing with complex discussions. These discussions may be in person, or they could be over a Teams or Zoom call, all of which can alter the dynamics. Regardless of where the meeting is taking place, consider these top tips to help secure the best outcome:

1. Use the power of silence - Silence is such an underused tool, but when used properly it can be one of the most important devices. We’re all human, and so the natural tendency is to fill gaps in conversation, and it’s at this point where your potential supplier could offer up more information. Don’t rush to fill the gap
2. Use data to your advantage - Data is vital evidence to back up a point of view, so never be afraid of relying on it in a negotiation. Refer to benchmarks, KPIs, and market data to back up your position, or challenge assumptions
3. Focus on total value, not just price - No product or service is valued on a top-level figure alone. Consider the whole package, including things like service quality, delivery, and warranty terms when negotiating.
4. Break down the deal - For more complex negotiations, consider breaking it down into chunks. Segmenting the negotiation into parts can make it easier to reach agreement incrementally. For example, you might decide that the project is too complex to negotiate as one, so you decide to find an agreement on pricing first, before then moving on to discuss delivery and support.
5. Always have a fallback - It’s important to stay flexible when negotiating, especially if it is a product or service you really want. Always make sure you have the best alternative to a negotiated agreement, i.e. a fallback option, as this will make your negotiating position stronger.

How to overcome challenges

Not all negotiations are going to be plain sailing. People often face obstacles, such as power imbalances, lack of internal support, or pressure to reach an agreement quickly. In the public sector, there’s the added dimension of transparency requirements, which can make negotiation feel constrained. However, there are a few things you can do to overcome issues:

• Engage with other key players in your organisation early to align on priorities and avoid last-minute surprises.
• Document all discussions to maintain transparency and compliance.
• Focus on training and mentorship to build negotiating skills within your organisation. Providing support to your staff will mean they’ll feel more empowered when it comes to negotiating.

Considering the long-term value following a successful negotiation

Mastering negotiations is essential for buyers in order to get value for money, mitigate risk, and build long-term supplier relationships. Often, it’s the last part that is missed. Once a negotiation is successful, and a contract awarded, that shouldn’t be seen as the end of the process. Rather, that’s the beginning of a relationship which your organisation then needs to build upon in order to get the best outcomes in future negotiations.

Procurement Hub supports public sector buyers with compliant, value-driven procurement solutions. For more information get in touch with us today.