Corporate Negotiation Skills — How Supplier Negotiations Really Happen in Large Corporations

The word negotiating brings a lot of vivid imagery to people's minds. Before I negotiated as part of my job, I imagined negotiating to either be like police interrogating a suspect or a businessman slamming his fist on a table while wearing an expensive suit making his demands.

The reality of negotiating is very different from these Hollywood type depictions. In fact, if you find yourself negotiating with nothing but aggression and intimidation like in movies and TV shows, there is a good chance you are actually on the losing side of the negotiation.

Before we dive into what negotiations are actually like, it would be helpful to share a bit about my own negotiating experience. I’ve been responsible for $200MM worth of annual spend with a public manufacturing company, managing hundreds of suppliers. Our procurement department was in weekly negotiations with suppliers that could potentially save or cost the company hundreds of thousands of dollars on the low side to millions on the high side. We also had negotiations around supply security, order expediting, and partnerships.

It wasn’t uncommon for us to problem solve supply issues resulting from obscure events like the water levels rising on a river that forced a chemical plant to shut down. A chemical plant that was the only supplier in the world that we could buy from. Those negotiations were not necessarily about hard costs, but around prioritizing orders, ensuring a sense of urgency, expediting shipments on airplanes (at the supplier's cost), and demanding clear next steps that our business could plan around.

Do Corporations Just Yell at Eachother in a Negotiation?

Can that occasionally happen? Yes, but 99% of our negotiations were done in a calm tone relying on our longstanding relationships, market data, and leadership. Even when millions were at stake, letting your emotions dictate the conversation was a quick way to lose or show a lack of control.

Why are emotions bad? Typically the first person to break and show outrage and anger also reveals that they are desperate, panicking, not in control, or they are unreasonable. Emotional outbursts or emotional-based arguments are incredibly difficult to backup. It’s a never-ending road that once you steer down is difficult to come back up. Your insult or tone to the other party can trigger them to do the same to you, which causes more escalation and more escalation until you have lost sight of the original objective. What can be even worse (and is more common in my experience) is that your emotional outburst shows you are desperate and don’t have facts to back up your objective. You’ve exposed yourself and your weak argument.

Strength in a negotiation is controlling your emotions and giving your best poker face. Even with your back up against a wall, adding emotions will only make your position worse. Your success rate will be much higher if you rely on the healthy relationship you have built, 3rd party data that supports your argument, and by showing the other party that the issue can be resolved professionally.

How Do Negotiations Start?

A meeting is usually set with a vague agenda eluding to some sort of broad review of the business. Directly acknowledging the purpose of the meeting is usually avoided because the party making the demand wants to have the upper hand by surprising the other party with a well-prepared argument. The other party usually suspects something is not right due to the vague agenda so they are not too surprised when a request is made.

A key aspect of starting a winning negotiation is knowing who is more patient and willing to play the long game and/or who is the most willing to walk away. The party showing confidence that they are right to be asking for what they want puts the burden of proof on the other party. If you know that your ask is 100% justified and reasonable, you can take an approach that indicates you won’t be going away until you get what you are owed. You are willing to let the process take as long as it needs to (within reason).

This process lets the other party voice their objections and collect their own counter-arguments. After a review of their counter-arguments, if your request is still justifiable, you are in a much better winning position than before. Even with all their research, your claim/request is still justified and owed.

If you are the most willing to walk away, you also have the upper hand. However, this isn’t a good tactic to use early on. Walking away can lead to a lot of hidden costs like the cost to find a new partner, the cost of a project being delayed, and the cost to onboard a new partner. If you are called on your bluff over and over again, the threat to walk away will lose its effect. If you are willing to walk away you are also likely taking a very aggressive approach which can cause damage to the existing relationship. Understand the risks you are taking and make sure you understand the full cost of walking away.

Data-based Negotiations

It’s very difficult to argue with hard facts. Especially facts that come from reputable industry sources. Relying on market data to show raw costs have decreased or competitor quotes are lower can be great tools for an easy win. A databased argument requires the other party to respond with data and if they can’t, they are admitting defeat. There is no logical argument that can be made without a counter data point.

It’s critical to do a gut check at this stage too. If you can’t justify your own argument with data, are you making a reasonable ask? Can you reasonably expect your supplier or partner to give you what you want if you can’t prove why? There are times when you relying on the relationship you have with a supplier can get you what you want, but we will discuss that in the next section.

Relationship-based Negotiations

Nothing is better than the ease of doing business with a supplier you like working with. They make concessions when they should and they sometimes also ask for them in return. It’s a symbiotic relationship that ebbs and flows as economic and business factors change, but it stays healthy with a mutual benefit for both parties.

Building a relationship like this takes time and trust. Both parties need to have experienced both highs and lows together that resulted in good outcomes in the long-term. If one party lost some revenue in the short term but was rewarded for their patience later, there is more trust that a similar situation will be handled well in the future. This requires good business ethics, morals, and a genuine personality. You need to be yourself and build a bond with your counterpart and troubleshoot issues together.

Relationship-based negotiating means using the rapport you have built with another company to problem solve issues with ideally win-win solutions. You have built trust that enables both companies to be more honest about what they can and cannot do. Where they have room to make concessions and where their hands are tied. Examples of this are:

1. Reduced pricing for one product in exchange for new business
2. Price increases that are delayed until your next fiscal year and can be properly budgeted
3. Openly discussing competitive quotes and market dynamics. When can prices be adjusted that both parties win? What data is missing?
4. Free resources and expertise from a partner/supplier to help lower manufacturing costs or troubleshoot an issue without affecting their margins.
5. Asking for a favor. Company A isn’t having a strong financial year and needs help with its margins. Company B knows that if they help Company A with reduced pricing in the short-term it will help them maintain the business in the long-term. Company A might also return the favor by agreeing to a price increase during a strong financial year.

With relationship-based negotiating, you have to be willing to concede from time to time. Maybe the cost of raw materials for your product has increased and your supplier has held off the costs for 6 months from hitting your price. In exchange for them shielding you for so long, you may owe them that price increase. Conceding and allowing for a healthy give and take means you can ask them for a decrease a year later when the raw material costs drop back down.

The important thing to do before conceding is fact-checking. Many suppliers will request a price increase that is higher than the market change. They do this because they are planning for a negotiation and have an ideal number they want to land on. Even if you think your supplier is owed an increase, make sure you are agreeing to a reasonable number.

The key to relationship-based negotiating is to maintain your leadership role by setting expectations for data-based proof, a calm tone, and holding both parties accountable to concessions made in the past. Sometimes a partner or supplier needs to be reminded of the past favors you did for them that justify your current request to them.

Reality Check

Most corporate negotiations are regulated by a desire to keep the status quo. There isn’t a strong desire to rock the boat and fire suppliers/partners every week and hire new ones the next. The cost and time to do so are significant. It explains why corporate negotiations are not bloody warzones, but negotiations made with data-based evidence and civility supported by healthy long-standing relationships.

The upside to this dynamic is that relationships are valued, respect is given, and data is king. If your argument can hold water while you maintain composure and professionalism, you are positioned to win.