By Domenic Nigro
Negotiations are often traditionally viewed as a “transactional” model – a contest to be won. Current negotiation models emphasize a more strategic approach in order to develop an ongoing customer-supplier relationship that’s beneficial to both parties. While the United Auto Workers may have good reason to take the transactional approach when negotiating with car manufacturers, it’s not the best approach for business owners looking to sustain and expand their shops.
The business owner must begin by “aiming high” in negotiations with suppliers, looking for the best value for the products he’ll purchase. The strategic approach focuses on value creation. When a supplier quotes a price, the business owner cannot view it in isolation from the entire owner-supplier business relationship. As a shop owner, you want a supplier who delivers the parts you need in a timely manner and provides quality parts for you and your customers. The supplier wants your repeated orders. Having a reliable supplier of quality goods creates value for your shop.
Rather than a contest with a winner and loser, the strategic approach is a “win-win” proposition for both parties in the business relationship. Among the benefits the shop owner can look for from the supplier are things such as: 1) transportation accommodations, 2) favorable payment terms, 3) additional purchases, 4) the opportunity to buy a combination of products and/or 5) accommodations in the delivery of parts.
A shop owner needs to prepare before entering into negotiations. In the strategic approach, keep the following in mind.
Give yourself room to negotiate. Don’t go into the process with a “take it or leave it” attitude, backing yourself into a corner. Have a clear goal in mind for the negotiation. Be prepared to make concessions that are beneficial to your position, but know that it’s not necessary to match the other party concession for concession. As a buyer of parts and supplies, you begin lower on the price scale, giving legitimate reasons for your position.
In the strategic approach to negotiations, “concession” is not a dirty word. Remember, the process is a give-and-take for both parties. It may be easy for you to concede on minor issues to generate goodwill. But, remember also to not be ridiculous in the process, asking for concessions you know the other party can’t make. At the same time, don’t insult the other party by not responding to their legitimate business requirements.
The strategic approach requires a comprehensive approach for the shop owner. Besides price-per-part, the shop owner can deal more intelligently if he also includes items such as: cost of delivery; storage of products; and, response from the supplier if problems occur.
So now you’re ready to use the strategic model of negotiations. As a shop owner, you want to develop reliable business relationships with your suppliers, shippers, etc. The first consideration is the arena in which you will negotiate.
There are basically three ways to negotiate with your suppliers: by phone, email and in person.
Most of the time, suppliers are dealt with on the phone. In the use of the strategic model, this poses challenges for the shop owner. In the strategic model, you must be in tune with the ebb and flow of the process. On the telephone, a major issue is the ease with which distractions can draw you away from your discussions with your supplier. In the office, employees are probably interrupting you with questions about service, individual customers and parts. Plus, other calls may be coming in that need your attention.
- Rule No. 1 for telephone negotiations: don’t be distracted. If you’re not simply going to accept a supplier’s initial stated price for parts, you need to block a chunk of time to negotiate. It doesn’t need to be a two-hour discussion, but it certainly won’t be a five-minute call. Allow enough time for the give-and-take which you and the supplier need, at least 10 to 15 minutes. You’re building a reliable, mutually beneficial business relationship, so you can take the time to work on it. The employee with a question can work on another part of the service until you’re finished. The customers will be patient if you (or an employee) explain that you’re tied up but will be with them as soon as possible.
- Rule No. 2 for telephone negotiations: have a pen in your hand and use it. Even though you’re not distracted, numbers may start flying through the phone lines. Even if you have the best of intentions, you won’t remember everything you discussed. When a supplier tells you he’ll drop a price by 5 percent in response to your commitment to order parts from him exclusively, you need to have a record of the original price, the discounted price tied to your commitment for future orders and the specifics of your commitment. Write them on a sheet of paper you can use for future reference. It’s simple enough to get started with the pen: write the date, time and name of the person on the other end of the line. Then, take notes. At any time subsequent to the conversation, you’ll know exactly what commitments you made and what exactly your supplier promised.
- Rule No. 3 for telephone negotiations: have a checklist when you start. You know what you can offer the supplier, and you know what you want. Make a list for each. As you end the telephone conversation, it will be easy for you to go over the terms which you and your supplier have reached.
Another avenue for negotiation is email. With written correspondence, you may think you don’t need to be as engaged as you are in telephone negotiations, and this is true to a certain extent. With email, there’s no need to take notes because everything is already in writing. You do need, however, to remain diligent.
- Rule No. 1 for email negotiations: make a folder for each supplier. Going back and forth by email, it’s easy to lose a supplier’s proposal or counteroffer in your inbox. Once you see the sender, move the email to a folder you’ve created for him. Then, it’s easy enough to see the progression of offers and counteroffers which have transpired. When a final agreement has been reached, you can easily see all the terms and commitments in the business relationship.
- Rule No. 2 for email negotiations: clarify terms. In telephone negotiations, it’s simple to get explanations for proposals: you just ask. With email, it may be necessary to reply to an offer with a request for more information. Don’t assume that terms such as “standard” mean the same to you as they do to your supplier. Request information, hit the reply button.
- Rule No. 3 for email negotiations: don’t delete prematurely. You want to make sure that the arrangements you make are put into effect, especially with a new supplier. Hold on to the negotiation paperwork until you’re satisfied that the relationship is working and you’re getting and giving what you want.
The third avenue for negotiation is face-to-face. Whether a sales representative sets up an appointment or makes a cold call, if it’s a business relationship you want to explore or develop, take the time to speak to the rep. There’s a great deal to be said for looking a supplier or rep in the eye and knowing that you can trust him.
- Rule No. 1 for face-to-face negotiations: conduct yourself professionally. You’re looking to establish and/or develop a business relationship in your negotiations. While your parts supplier might be a blast at the bar, you’re in an office now. You don’t need to be a robot, but you also shouldn’t be having an argument about your favorite sports team. Save it for happy hour!
- Rule No. 2 for face-to-face negotiations: stay focused. You want to rely on your supplier, and you want him to rely on you. In order to do that, make sure to stay on target. Know what commitments you can make, and know what products and services your supplier can provide.
- Rule No. 3 for face-to-face negotiations: get it in writing. A word or two and a handshake don’t make for a clear contract for services and products. Yes, a handshake may seal the deal, but you need to be clear on the deal you’re sealing. Write terms and commitments as they’re made. Then, when everything is settled, seal the deal with signatures.
Regardless of the arena in which you make your deals, stay focused, know the terms and write them down.
You’re negotiating when you enter into a business relationship with your suppliers, shippers, etc. Develop that through strategic negotiations, and both your business and your suppliers will benefit.
Domenic Nigro is co-owner of Nigro’s Auto Body in Philadelphia, Pa. He can be reached at [email protected].