More on Negotiations

Today’s guest blogger is my colleague James Baehr, who in addition to his broad experience with Strategic Sourcing, heads up the IT Strategic Sourcing practice at Greybeard Advisors LLC. Jim has had management roles in IT sales, IT operations, and IT procurement at major firms, before joining Greybeard. Jim can be reached at [email protected]

“Last Minute Bids and Contract Extensions Can Limit Leverage”

The unstable economy presents many challenges for Procurement professionals. They make candid assertions like   “I do what I need to do to get through the day.”  It’s no revelation that there is tremendous pressure on Buyers to reduce price. As one senior financial manager stated “we have three priorities – best price, best price and best price”. All this emphasis on price is dragging Procurement professionals down to the tactical level - issuing quick bids and placing orders based solely on price. There’s no time for strategic negotiations preparation and execution.

Making matters worse Buyers are caught up doing more clerical work. They have precious little time to attend to strategic responsibilities. We have seen too many companies who are running on contracts that have expired or nearing expiration because Procurement is caught up in the day to day. Contracts are benignly neglected. As noted earlier, bidding at the last minute typically limits the decision criteria to price. Procurement finds itself with little, if any, room to negotiate for “better whatever.”  Extending a contract works, but only for so long. Some companies have taken to extending agreements two or three times. This leaves money on the table and compromises leverage.

In most cases suppliers are willing to extend agreements. It enables them to both keep the business and increase their leverage. As the extension matures a customer can become more dependent on the supplier. When the situation reaches the point when it’s no longer practical to extend the agreement it’s too late. If Procurement was expecting to negotiate favorable terms - they can’t. It becomes a “take it or leave it” scenario.

Contracts are typically serious commitments and need to be approached strategically; otherwise, you’re “stepping over dollar bills to pick-up pennies.” 

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