Negotiating with Bullies
July 07, 2014 - SCMR Editorial
I am in Singapore this week, teaching a Strategic Negotiations Workshop for the Asian Supply Chain (3PL) division of a global transportation company. The class of about 20 Supply Chain Managers came from across Asia (Singapore, Malaysia, Japan, China, and Korea) to attend. It was truly an honor to work with these very talented and extremely smart people.
But their frustration with Supply Chain and Logistics customers was palpable. They told me story after story of negotiations that broke down because their customers were solely focused on reducing prices, including squeezing the last fractions of pennies out of 3PL services. Customers have become bullies they said. Most of their customers are represented by buyers from headquarters assigned to the contracts; professional buyers with little or no understanding of Supply Chain strategies. Very often these buyers have only one thing in mind: reducing prices and they won’t tolerate discussions about anything else. They don’t see the bigger picture and don’t understand the value-added components of 3PL services.
My students were desperate for strategies and tactics to help them out of these “price reduction only” discussions with their customers and broaden the conversations. We worked hard to develop some effective strategies for negotiating with buyers and bullies who focus on price only. These include:
1. Every time a customer asks for another price reduction, suggest trading for something in return. Ask for something of value back such as move volume, another division, another project. Never concede, always trade.
2. Keep opening the conversation and adding value to the deal by suggesting additional services or things that cost you little, but represent big value to your customer.
3. Focus on some new goal that you both want in the future and trade your research for their additional business. RFID is a good example where research and costs can be shared.
4. If the buyer still refuses to budge on getting price reductions, and you are in a stalemate, try escalating the conversation to a C-level executive. Try organizing a meeting between your executive and your customer’s executive. Sometimes executives can break the log jam.
Ultimately, if nothing works, you may have to make a difficult decision and part ways with the customer. It makes no sense to waste your time and valuable resources on unprofitable and unreasonable customers.
There is a lesson here too, for buyers of 3PL services. Third Party Logistics is a relatively low-margin business. When negotiating with your 3PL, remember that they also need to make a profit margin to stay in business. In negotiations, stubbornness and demanding price concessions with no justification will make you appear uncooperative and a company the 3PL would rather walk away from.
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