Subscribe to our free, weekly email newsletter!


Moore on Pricing: New tricks for contract negotiation

By Peter Moore, Adjunct Professor of Supply Chain
April 01, 2012

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
Adjunct Professor of Supply Chain

Peter Moore is Adjunct Professor of Supply Chain at the University of Denver Daniels School of Business, 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 .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

U.S. carloads were down 2.4 percent annually at 284,618, and intermodal volume was up 6.7 percent compared to the same week as last year at 277,854 trailers and containers.

The results of the 2015 MHI Annual Industry Report were released at Wednesday’s ProMat keynote, with some of the biggest findings from the report’s survey being pricing pressure combined with ever growing customer expectations for a faster, better experience.

Seasonally-adjusted (SA) for-hire truck tonnage in February was down 3.1 percent (2000=100) compared to a revised 1.3 percent (from 1.2 percent) increase in January. ATA said this reading marks the lowest level for the SA index going back to last September.

It was a busy day for railroad-related legislation yesterday, with the United States Senate Commerce, Science, and Transportation Committee approving two bills with a railroad focus by a voice vote. The respective bills are S. 808, the Surface Transportation Board Reauthorization Act of 2015 and S. 650, the Railroad Safety and Positive Train Control Extension Act.

Indications given by a splinter group of the International Longshore and Warehouse Union suggest that shippers should not assume the tentative contract with the Pacific Maritime Association is a “done deal.”

Article Topics

Columns · Trucking · April 2012 · Transportation · Rates · All topics

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA