Moore on Pricing: New tricks for contract negotiation

After more than 35 years in the industry, I thought I had seen it all. However, I spent a few days last month with some University of Tennessee (UT) colleagues as well as industry and government leaders discussing the evolution of strategic sourcing and collaborative contracting.

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After more than 35 years in the industry, I thought I had seen it all. However, I spent a few days last month with some University of Tennessee (UT) colleagues as well as industry and government leaders discussing the evolution of strategic sourcing and collaborative contracting. 

Fifteen of us then attended the pilot program on Collaborative Contracting offered by Jeanette Nyden J.D. at UT’s Center for Executive Education in Knoxville—and it did not disappoint. Dr. Nyden has practiced contract negotiation and contract mediation as well as litigation and has written several books on the subject of improving negotiations to get to a mutually profitable and lasting relationship. 

Dr. Nyden provided us with the latest practical techniques in what she refers to as “getting to we.” For many shippers and carriers, this would indeed be a major redirection in thinking. It involves five interaction characteristics along with some new language in that old transportation services contract.

The first challenge, according to Dr. Nyden’s techniques, is creating “transparency.” Both parties need to come to the negotiation prepared with real data, business information, and a vision of how this relationship fits the strategy of their business. The intent is to be open about the goals of the deal and honest about its importance to each party.

Dr. Nyden refers to this as “skinny dipping,” with the shipper (buyer) shucking their clothes first. This transparency will enable both sides to see how the proposed deal fits with their vision of the business, what investments and commitments will be needed, and where any gaps in service could occur.

The second challenge is “authenticity.” One can disclose their business, but still hide their future intent. In all negotiations, each side has to hope that the other party will not surprise them during the term of the contract. Being honest about current and future plans while offering transparency is a great way to build a partnership of mutual interest that tends to extend the length of the ongoing relationship.

Establishing “common knowledge,” another of Dr. Nyden’s recommendations, remains a challenge for shippers and carriers as most still maintain their own systems to share rates and produce metrics. Technology today will support a single system of record for both parties, and I suggest it be the carrier’s system. At a minimum, the ability to access and mine history and operational performance from each other as well as the establishment of a single set of metrics for joint review is critical.

The fourth challenge is the “active discovery of cultural style” of the potential partner and the shipper’s organization. Again, there are powerful capability and trust tests that companies can take together or on their own to get a measure of your team and your partner’s team. These tools are reliable predictors of the behavior of the company under stress as well as in operational roles with critical service outcomes.

Last—and unfortunately where many shipper and carriers start—is to “align both parties” through a contract. Doing the pre-contract/RFP work, understanding your market and the potential partners in it, reinforces the short-term arms length behavior that is reflected in the annual bid contracts we see in the market.

The new contract language reflecting the collaboration is unique, and examples can be found in both government and industries across a number of services. If your transportation services contract does not start with a shared vision including what performance outcomes are expected and what investments each side will make in the relationship, then I suggest it’s time to go back to school and learn some new tricks.


About the Author

Peter Moore
Peter Moore is Adjunct Professor of Supply Chain at Georgia College EMBA Program, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at [email protected]

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Article Topics

April 2012 · Rates · Transportation · Trucking · All Topics
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