Want strong contract deals and supplier relationships? Here’s why collaboration is key. By Julian Fris, Director of FM consultancy Neller Davies, and Kate Vitasek, an American author, educator and lead researcher at the University of Tennessee
Once upon a time, negotiation meant ‘getting to a yes’. But times have changed. Today, the key to a successful supplier agreement isn’t just about scoring the one-time-deal – it’s about a continuing conversation in which day-to-day interactions play just as big a part.
With collaboration a vital factor in the business world, the traditional ‘getting to yes’ mentality finds itself at a crossroads. Where conventional negotiation is concerned, the other party is on the opposite side of the table. But to mitigate risk and reduce the total cost of ownership across the supply chain, it is essential that today’s trading partners share the same side – and purpose. This new approach to negotiation is known as ‘getting to we’.
What makes this different?
In simple terms, negotiating the foundation of a long-lasting contract relationship takes precedence over getting to a deal. Embracing a ‘what’s in it for we?’ mindset creates a negotiation atmosphere that encourages cooperation. The details of the deal – including the scope of the work, pricing, and terms and conditions – are no longer the core focus. Instead, the parties start by establishing the mechanisms they will use as they negotiate those details.
For both parties to understand to what extent they can build the foundation for their relationship, they need to first discuss the three core elements for successful collaboration. These are trust, transparency and compatibility. Not only will maintaining these three factors encourage both buyer and supplier to make investments in the relationship – it will also pave the way for innovations and continuous improvement opportunities that benefit everyone.
Having a ‘kick-off’ workshop is a great start to the negotiation process and allows exploration around how each organisation can improve their relationship across each of the three core elements. So, in the case of transparency, what are the benefits of being transparent? How transparent is each party willing to be? And what are each party willing and reluctant to share?
Tools, including the Speed of Trust survey further gauge the trust in the buyer-supplier relationship. The Compatibility and Trust Assessment is another tool that measures five dimensions proven to be linked to buyer-supplier success. These are as follows:
Trust (in terms of company performance, reliability, and behaviours)
Innovation (in terms of the company’s willingness to take risks, and the level of support and encouragement received)
Communication (in terms of its flow, consistency, availability, and effectiveness)
Team orientation (in terms of respect, value, and how both parties work together)
Focus (in terms of a common purpose and direction, as well as clarity of roles)
AGREE ON A SHARED VISION
Collaborative buyer-supplier relationships will only work when both parties recognise that each has its own perspective. In a joint-workshop environment, both parties should work together to combine their separate visions into a shared vision. Not only will this give the partnership a purpose beyond a series of transactions – it will also help to guide the partners during the negotiation process and beyond. This is something that should be included in formal terms in the contract.
NEGOTIATE GUIDING PRINCIPLES
Guiding principles (or ‘social norms’) provide the foundation of a highly collaborative relationship. Formally placing these into the negotiation process helps partners to guide behaviours while building a trusting relationship. For it to work, the following principles need to be adopted:
- Honesty: This guiding principle obliges both parties to tell the truth by acknowledging business realities and sharing their intentions and experiences. Without it, the partnership won’t survive as a collaborative enterprise.
- Reciprocity: This value obligates both parties to make balanced exchanges and rather than adopting the traditional ‘us versus them’ adversarial approach, allows the buyer and supplier to decide what is fair through a more transparent and trusting negotiation process.
- Autonomy: Neither party should use power to promote its self-interest at the expense of the other. Both should be free to make their own decisions, while also working as equals.
- Loyalty: A ‘relationship-first’ stance means each party’s interests are equally important. In buyer-seller terms, if the buyer demands a 60-day terms policy, for example, this may damage the supplier’s relationship and increase costs if the supplier’s cost of capital is substantially higher than the buyers.
- Equity: As with loyalty, both parties should be equal when it comes to equity. Having said that, a 50-50 split isn’t always the fairest approach. There are two important parts of equity, and these are proportionality and remedies. If one party takes greater risks or makes larger investments, proportionality means it may also get a larger proportion of the rewards. An equitable remedy, on the other hand, allows each party to come to a compromise when the contract itself limits the result or does not address the matter.
- Integrity: This last value means maintaining consistency when it comes to decision making and actions. By looking at previous decisions, both parties can better predict the future, therefore reducing complexity. Again, this promotes trust and strengthens the foundation of the buyer-seller relationship.
NEGOTIATE AS ‘WE’
Time for negotiation. But first – what strategies and tactics will and won’t be used when working out agreement details? A good starting point is for both parties to make a list of negotiating tactics it considers acceptable, and which it considers off-limits. By agreeing these details beforehand, they reach a less painful approach to negotiating contract details. Details including the scope, metrics, pricing approach, and terms and conditions should be discussed during this stage.
LIVE AS WE
The last – and possibly most important step of the process is to negotiate how the relationship will be maintained long-term. In other words, how will both parties ‘live as we’ once the contract is signed? Because complex and long-term relationships are dynamic, a strong governance framework should be formally embedded in the agreement. This enables relationship management to remain the focus when ‘business happens’. Companies sustain their relationships over time by abiding by six governance mechanisms.
1) Creating a tiered governance structure
2) Establishing clearly defined roles
3) Establishing peer-to-peer communications protocols
4) Developing a rhythm when it comes to communications
5) Making sure performance management is transparent to encourage feedback
6) Developing a process to maintain relationship continuity
MAKING THE SHIFT
The bottom line? Getting to ‘we’ takes business negotiations far beyond simply signing on the dotted line. If you need to get the deal done, sometimes getting to a yes is good enough. But to build a strong, healthy, and long-term relationship between buyer and supplier, the relationship itself needs to be the focus of the deal from start to finish.