By Mark Hays, Contracts Area Manager
Wells Fargo Corporate Properties Group - Strategic Sourcing
The current business climate is fast-paced with little time for our business partners to understand contracts, supplier management, negotiation strategies, and all the intricacies involved in closing the deal. As contracts and sourcing professionals, we must have the right message that is simple and impactful. As much as we love what we do and live in our world every day, we want our business partners to live in a world where they do not have to focus on contracts, negotiations, deal-making, and the many other elements that we manage every day. Therefore, our processes need to be simple, easy to understand, extremely customer-centric, and yield powerful results. At the same time, we need to win the trust and confidence of our business partners so that their idea of a true partner in the deal is their sourcing/contracts support.
Think about each of the items below and how they relate to your sourcing and contracts organization. As sourcing and contracts leaders, we often look for the latest and leading-edge practices, but often the basics are overlooked. It is these basics that form the foundation of a successful sourcing and contracts team.
1. Build relationships – Success in business is about developing and maintaining good relationships and managing perceptions. The same applies in negotiations. A good contract Negotiator will work hard on the relationship with the business partner. Without mutual trust and respect in that relationship, negotiations will be extremely difficult and likely not succeed. Business requirements will be difficult to obtain, and communications between the business partner and supplier will be difficult to manage. The Negotiator must keep their business partner informed, guide them through the process, and help manage their expectations. Remember, the sales person from the supplier company is often better trained at developing relationships. Sourcing and procurement management needs to meet that challenge with their own staff and enhance skillsets for building realtionships.
2. Develop competency – Competency breeds credibility. A common perception of Negotiators is that they are “corporate,” that they don’t understand the business, and that they are a cog in the machine rather than a step in the process that adds tremendous value. Negotiators should be highly trained in contract law and drafting, negotiations, and in the art of closing a deal. If this can be achieved, then there is no need for a hand-off to Legal, which confuses the supplier, creates inefficiencies, and dilutes the perceived authority of the Negotiator. Another best practice is to have the Negotiator’s manager sign the contracts. The more authority that the supplier perceives the Negotiator to have, the faster the deal will be completed and the higher the quality will be.
3. Become trusted advisors – Customers of a best-in-class sourcing and contracts organization will view the organization as an enabler to getting what they need for their business, and not a blocker. This is a product of competency and a good relationship. This must be earned by providing appropriate and accurate advice, as well as proven value. A good indicator of achievement of this status is when customers ask you how they should handle a need, instead of simply asking whether you can have it done by tomorrow. Another indicator is when you start to see an increase in the average number of days you have to complete a deal. Trusted advisors are included earlier in the lifecycle of the deal.
4. Respected Partner – Suppliers should be viewed as experts in their field and as respected partners that enable your success. The tone of negotiations should be one of mutual respect. Whether or not a supplier believes they got the price and terms they wanted, they should feel as though they were engaged fairly and that the Negotiator was firm, but professional. Disrespectful or unprofessional engagement pushes the supplier to engage your company through your business partner rather than through a Negotiator. This inhibits the Negotiator’s ability to control communications, which is crucial to negotiating the best deal.
5. Manage the process to a successful outcome – A good, disciplined, and objective process will reveal the outcome that the business partners wants, as long as what they want is based on objective reasoning. If what they want is based on emotion or relationship only, then the sourcing process should expose that. A good requirement-gathering process and a good process to understand capabilities of suppliers are key components of the success of this process.
6. Practice objectivity – The sourcing and contracts organization must appear to be objective in every way. This includes establishing a zero-tolerance, zero-dollar policy on gifts, and establishing a sourcing process that removes emotion and irrational conclusions. However, each decision matrix should have an experiential component that allows quantifiable subjectivity. Real experience (which is often subjective) must be a part of the decision, and the people on the ground who are the recipients of this service should give this feedback.
7. Partner with Sales – Sometimes suppliers are also customers of your company. If this is the case, be a good partner with your sales force. They earn the money for the company, and need to be informed of all sourcing events. The customer relationship manager, or sales person, can be a good partner in negotiations. Most customers look at the entire relationship, but most companies make the mistake of looking at the sell and buy side separately.
8. Supplier selection – Do your business partners think that the sourcing group selects suppliers, or do they think that the process selects the suppliers? If they think that your sourcing group selects suppliers, you have the beginnings of an adversarial relationship, because no sourcing person knows the business as well as the business partner. The sourcing process should select the suppliers based on requirements and experiential feedback from your business partners, combined with a capabilities assessment, pricing, and other key components from the sourcing exercise.
9. Customer Centricity – A customer-centric organization is not one that caters to every wish of the customer, but one that challenges customers respectfully, listens to their requirements, educates them, and adds value to the transaction. This must be measured through metrics, and Negotiators must be held accountable for their performance in this area. Making customer satisfaction a key component of performance management is critical.
10. Simplicity – A key to customer satisfaction and process efficiency is simplicity. Make it easy for your customers to do business with you and don’t create so much process that it inhibits customer acceptance and adoption. Apply a return on investment (ROI)analysis to each new process and think about the impact it has on the customer.
11. Total Value Proposition – Success in sourcing is about increasing the total value proposition, and not just about getting the best price. Price is only one component of the decision. A supplier with the lowest price that also is the least capable will likely cost more in the long term than a highly capable supplier that meets or exceeds requirements but offers the highest price. Make sure that Negotiators apply this balance in their negotiations. Contract terms and conditions should include clear requirements and service levels with remedies. Sourcing organizations must break the paradigm that price is all that matters in order for them to develop a good partnership with their customers and be successful.
12. Customer Evolution – Any experienced Negotiator knows that the supplier negotiations are easy – it is the business partner negotiations that are difficult. It only takes one innocent comment from a business partner to a supplier to cost your company a lot of money, make terms less favorable, and extend negotiation time. Education of our business partners is critical to a successful sourcing process. They need to understand what can be said and when, what to expect, and what their obligations are in the process. This allows them to get the most benefit from the process and ultimately improves their satisfaction.