80% of Business to Business purchases involve some sort of contract. This fact startled me, even though I am an attorney. More telling, those contracts have become increasingly sophisticated. Contracts typically contain rebate language, chargeback mechanisms, and sophisticated legal concepts such as intellectual property (IP) protection. It is also common for contracts to encompass thousands of products, prices, incentives, compliance levels and other complex variables.
More importantly, non-lawyers are negotiating and managing almost all of those contracts. That means each company (buyer and supplier alike) have to have personnel who understand U.S. contract law, supplier management and supplier integration. Companies are involving their attorneys in only the most sophisticated types of legal issues, such as IP or Indemnification. Consequently, non-attorneys are drafting contracts, and in some circumstances sending them to legal only for review. There are usually circumstances in which no lawyer reviews the contract before both companies sign it.
Unfortunately, business people think about the contracting process like this, “…contracts (and the professionals charged with their creation) are frequently seen as obstacles to value creation and are viewed by many as an unfortunate prerequisite to doing business, rather than as a fundamental asset to successful relationships.”*
As supply chains are increasingly integrated and as companies seek ever more complex “solutions”, the contract professionals’ role needs to expand from processing paperwork to negotiating a deal that brings value to the table.
Define the “Best Deal” for Your Organization
What does this mean to the contracting professional? We know what it means to the procurement and the sales organizations. But, do contracting professionals define “best deal” on their own terms from the frame of reference of the organizational needs and risk tolerance?
Too many purchasing contracting professionals think (and are told) the best is all about getting the lowest price. And that might have been true when “buyers” were buying a ton of aluminum, or a pallet of paper. Sales contracting professionals are told to “hold the line on price and terms” so as not to expose the supplier to too much risk or devalue the product or service in the market. Now that organizations have sourcing strategies, commodity segmentation and partnerships with OEM, single and sole source suppliers, it’s a whole new negotiation paradigm.
People negotiate because everyone involved wants something from the deal. And each stands to benefit from the negotiated outcomes. In other words, the parties see immediate advantages or potential gains in the future if they reach an agreement today. How did customers and their suppliers forget that?
To re-think “best” deal, you need to understand that getting the “best” deal means defining “best” more expansively than negotiating aggressively on price. Note that I did not say, cheapest, least costly, or even the best value. I said “best” deal, which can mean anything depending on the organization’s goals and the circumstances at hand.
Only you and your organization can define “best”. This manual will help you help your organization define the “best” deal in the context of complex, interdependent customer/supplier relationships.
I’ve designed this manual for you to explore negotiation principles from the point of view that everyone comes to the bargaining table with positive motivators for doing business with your organization. All stages of negotiating from setting goals, selecting and countering tactics to formulating a strategy are outlined from the perspective of how to leverage common ground for maximum gain. That is the only way to get the “best” deal for your organization.
As you read the individual chapters of this training manual, keep in mind that it is by understanding our positive motivations and those of our counterpart that we reach mutually beneficial agreements. My firm belief is this: by leveraging shared interests, you find common ground. By finding common ground you will get the “best deal”.
Finally, the paper is not enough to manage risk. Companies have contracts to manage risk, but relying on the agreement to do the work is misplaced trust. The nature of the relationship will help manage the risk inherent in the relationship. The document spells out the roles, responsibilities and obligations each party has to the other. The relationship determines how well the parties adhere to those roles, responsibilities and obligations.
Your role is ultimately to negotiate the relationship. Your secondary role is to then document the relationship in the form of a contract. This is a much more difficult task than processing a template contract. But, embracing a larger role is the only way to demonstrate your value to the organization and move beyond gatekeeper.
*Source IAACM 2010 Most Negotiated Terms Benchmarking Study