I’ve been thinking about the term “negotiation” quite a lot lately and what it means for outsourcing in general and Vested Outsourcing in particular.
For instance, I’ve questioned whether negotiation is really the right word to use when talking about creating a vested relationship. In a recent post I advised that parties shouldn’t negotiate, they should collaborate for the win-win. For me, terms like ‘negotiate’ and ‘bargain’ – at least as they are commonly and currently understood – just don’t fit into the framework of Vested Outsourcing and the Five Rules.
But until a kinder, gentler substitute becomes more widespread, along with the Vested Outsourcing mindset – believe me when I say stay tuned, there’s more to come on that score! – we’re kind of stuck with grudgingly using negotiation.
An article “Negotiating for Value,” in the May/June issue of Supply & Demand Chain Executive by Martin P. Finkle, CEO of Scotwork, NA Inc., based in Glasgow, Scotland and Parsippany, NJ, is a case in point. It says that learning the total cost of the ownership process “can place you in a better position to negotiate for value.” Scotwork is a negotiation, consulting and training company for individuals and organizations.
“Negotiation is far more than getting the best price,” Finkle writes. “Many procurement specialists, especially in the medical device industry, focus too narrowly on dollars and cents when dealing with suppliers. Whether you’re buying stents, joints or replacement parts or need to fulfill contracts, you need to include the critical variable for any negotiation — value.”
He derives eight lessons from his experience working in that industry that he says also apply across many industries.
Some of the lessons, such as using a “total cost of ownership” (TCO) approach/analysis and getting involved in the procurement process from the beginning are valid. But others make me a bit uncomfortable because they are straight from the muscular, “old-school” playbook of negotiating tactics. It also seems ‘value’ in this instance primarily means the lowest cost or best deal terms possible for the benefit one side only.
For example, the third lesson directs a company to “see who’s got more power.” This is done through a “power balance analysis” that compares a company’s strengths and weaknesses to that of the supplier while listing what “you believe each side wants.” Ouch!
Instead of working together to achieve mutual benefits and desired outcomes, the company is advised to ask the right questions, determine early on which information should be revealed to the supplier, and to use the TCO approach to negotiate more favorable terms.
“Overcome suppliers who say they’ve been stripped to the bone,” Finkle writes. “When you believe the supplier has more power (discovered in the power balance analysis), enter the negotiation armed with a series of proposals. Then drive the process by putting proposals on the table without spending unnecessary time in dialogue. Be ready to ask what needs to be done to a proposal that’s first rejected to make it acceptable. This will keep you on the offensive and stick to the agenda.” For me, that’s another ouch that gives ‘negotiation’ a bad taste.
Working together to create trust and flexibility over the long term, to increase the size of the pie, getting to the win-win and ‘What’s in in it for We,’ and collaborating to create mutual value are conspicuously absent concepts from this particular lesson plan.
I’m not saying you should look at the world and your suppliers through rose-colored glasses, or join hands and sing “Kumbayah” with them. It’s tough and highly competitive out there.
But instead of “negotiating for value,” it’s better to collaborate for value.