Procurement meetings are a routine part of the Agency FD’s diary these days. Whether it’s new business or annual reviews they are part of the furniture now. I’ve written before about how important it is to treat this as a positive development but this isn’t to ignore the fact that this is a negotiation.
Negotiation is a skill in itself and requires a broad range of inter-personal skills. Most of these can be improved on over time with training and experience but in the short term there is only one way to improve the chances of a successful outcome and that is to prepare. And then prepare some more.
So far, so obvious, but I’ve been in too many meetings to miss the opportunity to repeat this. Preparation is your best bet to level the playing field. Your procurement manager has the purchasing power as well as the specialist skills. You have the detailed knowledge of your agency, your pricing and your operations. If it’s important enough don’t have the meeting until you know your subject better than anyone in the room
Only by being all over the detail will you be able to negotiate effectively. To do this you need to understand the following;
Operations. Unless it is a very simple, linear project there will be variables. Is it possible to alter the scope of work? Only by talking to the people doing the work will you be able to work this out. It’s not a spreadsheet exercise. One simple example of this was when we were able to cut the scope down from 3 templates to 1 master template plus amends. By changing the scope of work we were able to fit into the client’s budget but still preserved our margin.
Margin. It’s vital you understand the likely effect on margin. This has to be done on a marginal basis. What revenue will this bring in versus any additional costs? Don’t look at the cost per hour. Once you know your likely margin you know what you can and what you can’t give away. I also much like to talk to talk about fee reductions in terms of the effect they have on margin. 10% fee reductions can sound reasonable until you realise that could be over 50% of your net margin.
Documentation. If you’re properly prepared you will have plenty of spreadsheets, word documents or presentations to choose from. Think carefully about what and how you show this information. You have to tell a clear, convincing story. Especially if is a mixed audience I would try to keep detail to a minimum.
Negotiation. There are many simple rules about negotiation skills. I have some of them written down and laminated on a card in my wallet. Some of them I agree with, some not so much. Find what works for you and use that – being natural will always be more comfortable and more effective. However (apart from preparation) there is another golden rule which is always ask for something in return. If your client wants something, usually a lower price, then ask for something in return. It may be a longer term relationship, payment up front or a longer termination period. If you don’t ask you don’t get.
Realism. Don’t expect to “win” the negotiation. You are going to have to give something away. You need to be in control of what you give away and what you ask for in return. Both parties walking away happy is victory. Think about what your procurement manager needs to achieve and work towards that aim.
It’s a messy business sometimes and the answer won’t pop out of any analysis. You will need to think on your feet about what to agree to and what you need to time to think about. You will need an appreciation of procurement’s target and knowledge of how your agency can deliver that and still deliver a good margin. Square that circle and you’ve done your job well.
The author has spent a large part of the last two decades working towards procurement targets. Never really got there. If you need some help with procurement please email him on email@example.com.