Editor’s note: The following article is an excerpt from a book that Cary Silverstein is co-writing with psychologist Larry Waldman, Ph.D. titled “Overcoming Negotiaphobia,” the book will lay out strategies and tactics for negotiating with your children, your spouse, your parents and in business at various times in your life. The book is expected to be published this fall.
Businesses depend on positive relationships with their suppliers. Both as a home furnishings buyer and a director of purchasing at a major New York retailer (Federated Department Stores Inc.), I negotiated pricing, delivery, merchandise returns and advertising support. I also negotiated leasing agreements, production custom shipping boxes and delivery schedules for critical supplies, including the recycling of corrugated boxes and disposal of trash.
In some cases, there was an existing agreement that only required adjustments for the cost of living index. In other cases, new specifications had to be developed and a request for proposals mailed to approved suppliers. Once bids were received, they had to be interpreted and compared against current pricing. Interpretation meant recalculation of the bids so they were “apples to apples” and a fair comparison. Once, when I requested an annual bid on toilet paper and I specified the approved manufacturers on which the suppliers could base their pricing, I misinterpreted the bids. When the bids were received, I based my comparison on the case price instead of the cost per linear sheet of paper. I mistakenly awarded the contract to one supplier. When I realized it, I had to go back to the awarded supplier with “egg on my face” and retract the award. It was very embarrassing, and was the result of poor preparation.
How could I have been better prepared for this negotiation and avoided making an error that required me to save face?
- I should have requested the pricing be at the lowest common denominator, the price per linear sheet.
- I should have researched the best way to compare prices by speaking to experts, other purchasing agents within Federated Department Stores.
- I could have had someone else, another purchasing agent within the Federated corporate office, review the bids.
Instead, I made a rookie mistake and almost incurred a significant increase in expense. After that, I was more careful in developing bid requests and executing contracts.
Other potential pitfalls in these types of negotiations include not clearly developing your RFP (request for price), which should specify the following:
- Quantity
- Delivery frequency (weekly, monthly or quarterly)
- Specifications as to assortments, quality and labeling
- Design, color, packaging and materials (gift boxes or corrugated boxes)
The more precise your specifications, the lower the possibility for error and the more accurate the pricing will be. As you negotiate, you need to ask questions that will assist you in gathering the information you need to better execute your negotiation. Suggested questions are:
- Where is the next price break?
- Will combining orders gain a price advantage?
- Would a small change in specifications result in a price change? (Many times products are over-specified.)
- If we commit to a longer contract, would the price of the service or product be lower?
These questions and others will result in better pricing, service levels and relationships with your suppliers. Always have a back-up supplier in case your negotiations break down or you cannot achieve your price and delivery goals. Having a back-up strengthens your position and permits you to walk away from a poor deal.
Cary Silverstein, MBA, is the president of SMA LLC and The Negotiating Edge. He leads a group that provides services in the areas of strategic planning, negotiation training and conflict resolution, with offices in Fox Point and Scottsdale, Ariz. He can be reached at (414) 403-2942 or at Csilve1013@aol.com.
