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Gentlemen's Agreement

Gentlemen's Agreement

Playing hardball the collaborative way.

A number of years ago, a major automaker identified a new, innovative "heat shrinkable" tubing product which would solve a number of its manufacturing design challenges. When the automaker approached the tubing manufacturer with an offer to buy the tubing for 10 cents a linear foot, the response was brusque: "There's no way we could produce the product profitably at that price. We need to charge you at least 22 cents a foot."

The two sides quickly became locked in a competitive price negotiation. Deadlock appeared inevitable. At this point the buyer tried a different, partnership-oriented strategy.

Discovering the seller's manufacturing process was highly inefficient, the automaker agreed to provide technical consulting to the tubing company to help it improve manufacturing efficiency and lower costs. In return, the automaker was able to get a much better price. Both parties benefited: the buyer was able to control costs and the supplier was able to broaden its market and improve profitability. The cost to the buying organisation was minimal; the value to the supplier was great. In short, both sides won out of the deal.

Negotiations are often viewed as a battle between two sides in which both must make concessions, but one - whichever has the least negotiating power - must lose the most. In today's competitive environment this view just won't wash, says BayGroup International executive vice president Paul Hennessey. (The above anecdote came from his paper, "Profitable Purchasing Negotiation: New Approaches to Managing Critical Supplier Relationships".)

Hennessey points out the traditional, adversarial approach to supplier negotiation no longer works in today's global business environment. As leading companies look for ways to improve their buying performance, supplier negotiations have taken on an important new role: helping improve corporate competitiveness. Those who manage supplier relationships are increasingly called on to help their companies:

  • meet or beat aggressive product launch schedules
  • develop radically improved approaches to inventory management
  • meet aggressive quality standards
  • protect intellectual property while ensuring access to leading-edge technology.

CIOs have been particularly inclined to view supplier negotiations as an adversarial activity which forces them - noble guardians of the corporate IT treasury - to match wits with greedy suppliers intent on trying to grab as much of the corporate coffers as they possibly can.

Today's CIOs need new skills that can help them negotiate profitable deals in a much more strategic manner that build rather than erode supplier loyalty and partnership. Win-win must be the order of the day. With many companies more focused on partnering with vendors prepared to share part of the risk, and to anticipate and address their goals, needs, budgets and outcomes, the emphasis in negotiations is moving towards motivating partners to work with you.

"As we have moved into an economy that is knowledge- and service-based, the old paradigm of win-lose - let me get the best deal today and we'll forget about tomorrow - is gone," says Kingsley Smith, author of Your Ultimate Negotiating Skills Minibook. "The new paradigm of win-win has to come to the fore because in those sorts of industries you're almost always looking for some form of long-term relationship. And more than that, if someone on either side walks away from the negotiation feeling that they have been in some way not looked after in the right way, then they'll find a way of getting back at you, and it may subconscious, or not conscious, but it will happen."

A new appreciation of the importance to CIOs of being able to conduct win-win negotiations has coincided with a wave of fresh managerial thinking about negotiations, which has spurred a host of new books on negotiating skills.

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