Purchasing and Negotiation Training

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: In Part I we’ll examine big picture concepts of negotiation.  In Part II, we’ll delve into some questionable customer behavior.

Negotiation is the most important business skill we’ll ever master, yet it is often among the missing in our profits tool box.  We think of labor productivity, equipment, and techniques, as our stock in trade.  Certainly, all these are mandatory resources to prosper in the business, but none have the single largest impact on profits, cash flow, and long term viability as negotiation does. 

Negotiation is a mixture of business arts and sciences that works best when viewed as a set of economic principles.  This cost centered philosophy rejects the price obsession that characterizes the business world. 

Negotiation is not an argument over price 

The financial reality is that a buyer will pay a higher price if it buys a lower Total Cost of Ownership (TCO).  Disagree?  Let’s first distinguish between price and cost from the customer’s perspective.  For example, suppose you can buy one of two units priced at $750 or $500.  If low price is the deciding criterion, no question, the $500 unit wins.  However, if the higher priced $750 unit lasts for 2 years and the lower priced $500 unit lasts for one year; the $375 TCO of the higher priced unit clearly makes it the better buy.  Lowest TCO is by definition the best value. 

Quality, Service, Delivery, and Price (QSDP)

Our negotiation mission is to consistently demonstrate how our lower TCO provides better value to customers.  The four elements of cost always present in our negotiations are QSDP.  Any cost impact can be slotted in one of these categories.  A better trained work force is Quality cost advantage.  Superior warranty due to better materials and design are Service cost advantages and a better schedule due to planning and personnel cost advantages constitutes Delivery savings to the owner. 

The most frequently cited, yet most elusive goal is to remove price a bargaining point from the negotiation table.  It will happen when we focus our negotiation efforts on the lowest TCO for the customer.