Reciprocity Smesh-iprocity?
Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant
Editor’s note: For those who want to test their knowledge, click here to take the Purchasing Law Quiz.
The goal of the negotiation is to reach a contractual agreement for the exchange of one thing for another. Contracts are legal matters and thus our interest. Our motivations are entirely practical. Bringing in legal talent for every deal would bog down the process, raise the cost, and needlessly strike an adversarial tone. Parties react anxiously when attorneys accompany or worse, lead the negotiations. Negotiators suffer from internal friction when their lawyers feel that they are being tied down with details that competent purchasing pros should be able to handle. Lawyers have a valid argument that they are legal advisors to other capable professionals. Finally, deals for illegal subject matter, or between incompetent (a legal term) parties can be challenged on enforceability or good faith bases.
I am not a lawyer nor do I play one in seminars or blog posts. This material intended to substitute for sound legal advice. Rather, it is intended to complement the lawyers’ contributions. One need not be an attorney to acquire a working knowledge of commercial law. You must though be equipped with the basics so that you can spot dangers and refer those trouble spots for legal help. That is the purpose of presenting this material, and is limited to the practice of negotiation.
There is a gaping ignorance of commercial law amongst buyers and sellers. I came to the stunning realization that a better knowledge of the law was mandatory in this fashion. One manufacturing client valued its people in proportion to hours of work per week. Sixty to seventy hours a week was a good beginning. The executive crew composed of the president, CEO, and a handful of other key personnel would meet on Sunday mornings for strategy sessions. Alan, a real life S.O.B. ran these meetings. (S.O.B. means son of boss). At this one meeting, I presented the results of a report that sorted customers against suppliers because showing a substantial overlap. Moreover, in general, we purchased far more dollar volume from these suppliers than we sold to them.
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Alan suggested that I corner these suppliers with this ultimatum. “If you want us to keep buying from you, you’d better double what you buy from us.” Well by golly, that seemed like a genius of a plan to me. Purchasing could boost sales and probably raise margins while keeping supplier prices low. If we got close to losing a supplier, I could always back off on the margin so we would both still win.
I was eager to try out the new strategy with a particularly difficult saleswoman from the target group of suppliers. As I rolled out the plan, she took notes and asked questions. Finally, she offered flatly that, “I don’t think you can do that.” My male ego was ruffled (me Tarzan, her Jane) as I barked back, “What do you mean I can’t do that. As the customer, I can do anything I want.”
She corrected her statement immediately. “What I should have said,” she continued just as if she assumed I knew what she was talking about and with style that I still admire “is that we cannot legally engage in such an arrangement as it would violate the Reciprocity law.” I was dumbfounded, without any idea if she was pulling my leg or telling me something in earnest.
I was trying to negotiate an illegal deal while ignorantly congratulating myself for business genius. Reciprocity is a legal concept involving buying and selling that all professional buyers should know. She knew it and wasn’t a lawyer either.
So what are the basics of law that buyers and sellers must know?
We need to know more about the Uniform Commercial Code , contract law, and some federal laws. An absolutely essential reference for your professional library is a work of art by two lawyers who were also experienced professional buyers. The Purchasing Manager’s Desk Book of Purchasing Law is the best authority available. The authors, Donald B. King and James J. Ritterskamp, Jr., and the publisher, Prentice Hall, have created a master work of reference for purchasing pros that is written with the buyer in mind. You will find extensive authoritative treatment of legal matters relevant to buyers and sellers and you are urged to obtain and study this reference book.
For instance, the section on Reciprocity points out that the threat of coercion implied by trading of purchases and sales in fixed ratios is an attempt to monopolize trade. In the personal case cited above, the risk of consequences was small, but the personal embarrassment was high and my level of professionalism was low. It prompted me to delve into purchasing law and apply much of that acquired knowledge to the art and science of negotiation.