How to Build a powerful “Negotiation Factory” to Fix Cost Problems

The rise of the “Negotiation Factory”…

Buying effectively, reducing cost, developing teams, and creating strategic value is the fuel that supercharges operating cash flow improvements.

Is there an app for that?

Consider building a “negotiation factory” as a solution.

McKinsey says a negotiation factory is about “empowering negotiation teams with standardized best practice tools such as detailed RFQ pricing templates, best of benchmarking, negotiation scripts and role plays.”

I punched the time clock at a top-tier “negotiation factory” (positive connotation!) for 20 years…

Having a “systematic and repeatable process for supplier engagement” is a great baseline and

it should be an exciting & impactful journey to build a negotiation factory.

Building a World-Class Negotiation Factory

A few things I learned along the way to building a world-class negotiation factory…

Empower and enable buyers & supervisors to complete category A, B, and C negotiations – escalate as required. Increases negotiation capacity and employee satisfaction!

1. Train the people
2. Give them a negotiation process to guide them step by step
3. Prepare and negotiate in teams as required (high impact deals)
4. Consider and Go digital such as S2P and AI automated negotiation
5. Establish clear business objectives and negotiation boundaries

Achieving cost reductions should be about continuous improvement v. one episodic negotiation.

1. YoY price negotiations/reductions
2. Strategic sourcing for new product introductions
3. Change management pricing updates
4. Removing waste/inefficiencies from supply chain ecosystems
5. Today’s good deal seeds tomorrow’s waste
6. Everything is negotiable, and fixed costs become variable eventually

Spend management matters.

1. Understand where you are spending your buy
2. Create commodity strategies (incl commercial and technical)
3. Be versed in the product/services and technology cycle plans
4. Build roadmaps to meet business plans
5. Apply strategic sourcing principles to manage buys

Get the negotiation factory up and running and improve through learning and iteration.

1. Speed, agility, and decision-making are high-value objectives
2. Perfection is not possible. Get smarter and apply learnings
3. Stringing together singles scores runs. Lay stepping stones in deals

Use a zero-based/physical-based approach to understand “should cost” to drive out inefficiencies.

1. Use cost drivers with BIC benchmarks
2. Develop cost models
3. Understand external benchmarks data
4. Know your BIC pricing

Know the options/next best alternative on a total cost basis.

1. Enables better decision-making
2. Establishes leverage and deal parameters
3. Mitigates risk | Always be developing your options

Keep a pulse on & value relationships.

1. It’s a marathon, not a sprint (even when it feels like a sprint.)
2. Be the customer of choice to get the suppliers’ best
3. Deals need to work for everyone: customers, you, & suppliers (win/win/win!)

It’s a team sport.

1. Cross-functional support and alignment are essential and powerful
2. Procurement should be the Point of View(POV) negotiation owner
3. Aligned objectives facilitate team negotiations

In a digital world, existing relationships matter.

1. Buyers usually have the closest relationships with suppliers
2. Buyers know the cost details the best
3. External and cross-functional internal relationships matter

Contact us!

#CreateValueThatMatters #negotiationfactory