Supply chain negotiation: Improve the process to improve the results

We’ve all heard that you can’t improve what you don’t measure. In the supply chain function, negotiation is a critical skill for procurement professionals. Yet, while many companies evaluate negotiation results, they often overlook assessing the negotiation process.

Consider the sheer number of negotiations taking place within a company. The number can be staggering. Many companies operate with each function or business unit negotiating on its own, missing out on the benefit of centralized knowledge and shared learning. While not all negotiations are equally important, a consistent approach and shared knowledge benefit any organization.

Supply chain procurement functions are particularly negotiation-intensive, often at the center of critical discussions and strategy. Large organizations may work with tens of thousands of suppliers, and executives must navigate contracts in a rapidly changing environment. Geopolitical shifts, evolving regulatory requirements, and rising customer expectations are influencing negotiations, emphasizing resiliency, sustainability and compliance along with cost. Leading companies are forming “Constellations of Value,” carefully designed networks of trusted partners that are intentionally built to reduce risk and ensure supply chain stability. Although negotiations with these trusted partners may take on a different tone, they should follow a similar process.

Given this complexity, supply chain leaders should treat negotiations as a repeatable process, not just an outcome. Improving the negotiation process involves measuring it, establishing a cycle of continual improvement, and analyzing the results within the context of the process.

DSCI partnered with a leading multinational company’s supply chain and procurement department to refine their negotiation process to develop a more consistent approach and improve the results of future negotiations. The company had highly skilled negotiators with deep experience handling billion-dollar contracts, yet the company lacked a consistent process or framework for approaching the negotiations. Expertise was shared informally, without a structured approach.

The project aimed to identify which elements of the negotiating process influenced outcomes and establish a consistent, measurable process. By creating a consistent process and evaluation method, companies can correlate negotiation practices with results, gradually building a central knowledge base of shared learnings.

To measure the negotiation process, DSCI developed a simple framework using a 1 – 5 scale (with 5 being the best or easiest) to evaluate each stage.

DSCI Negotiation Scoresheet (1-5 scale)

• Preparation: Quality and thoroughness of prep work before negotiation
• Relationship with the Supplier:
  • before negotiation (historical pattern)
  • after negotiation
• Difficulty of Negotiation:
  • internally
  • with the supplier
• Communication Clarity and Effectiveness
  • internally
  • with the supplier
• Success of negotiation:
  • at closing
  • six months after the close

By scoring critical negotiations, DSCI identified correlations between process quality and negotiation success. Interviews provided qualitative insights into common hurdles and success factors. By combining quantitative and qualitative findings, DSCI defined a methodology for continual improvement. Over time, using a consistent process evaluation method that offers a growing data set creates stronger correlations between process and results. Companies can start by reviewing and scoring a sampling of past negotiations and then establishing an ongoing program for new negotiations.

Based on initial findings, three areas stood out:

1. Negotiation timeframe: Longer negotiations are generally more challenging, require more resources, and are prone to external changes or team turnover.
2. Internal alignment: In successful negotiations, the negotiation team understands which departments are impacted and aligns internal stakeholders accordingly.
3. Data gaps: Effective preparation involves identifying missing data that could streamline negotiations. Strategic data trading during negotiations can build trust and efficiency.

Working with the procurement team, we analyzed the results and distilled the findings into principles that could be applied in all negotiations. Breaking the negotiation into three stages—Preparation, Negotiation, and Wrap-up—allowed DSCI to develop a consistent process and drive continual improvement in the future. Each stage involves specific considerations to ensure thoroughness and effectiveness.

From this simple structure, we began to analyze the factors that influence a negotiation and the actions that should be taken in response to those factors. To develop a repeatable process, we created the following:

DSCI Foundational Negotiation Principles

DSCI identified the key actions needed to operationalize the principles, with preparation as the most important stage in the negotiation. We avoided going into detail on negotiation strategies and tactics which have been written about extensively. At each stage there are important considerations that influence the thoroughness of the action required, but the foundational principles remain the same.

Preparation

• Identify internal stakeholders and understand the complexity
• Align internal stakeholders on roles, responsibilities, and success criteria
• Understand the supplier relationship, including strategic importance of the supplier and the specific negotiation within the overall relationship
• Gather data, assess market position, evaluate risks, and identify data/knowledge gaps

Negotiation

• Develop and document negotiation strategy based on contract amount and strategic importance
• Fill any data gaps and consider strategic data trading
• Align stakeholders with negotiated terms before finalizing agreements

Wrap-up

• Capture key learnings post-negotiation
• Complete Negotiation Scoresheet
• Identify key success factors and hurdles

A significant insight from the project was the impact of strategic data. The most successful negotiation featured transparency and trust through data exchange. Effective preparation involves identifying the data you need and the data you could offer in a negotiation.

Establishing a consistent negotiation process allows companies to manage a rapidly changing supply chain environment with greater confidence. The DSCI Negotiation Scoresheet and Foundational Principles provide a practical approach to refining the negotiation processes. As companies implement these tools, they can expect measurable improvements in negotiation outcomes and a stronger, more resilient supply chain.

Companies can start by reviewing a sample of past negotiations using the DSCI Scoresheet to help them identify key patterns and insights. This approach not only helps build a robust database of negotiation knowledge but also fosters a culture of continual improvement. It creates a structured way to share the deep expertise that exists with individuals in the organization. Over time, as more negotiations are evaluated, the correlation between the negotiation process and its outcome will become clearer, offering more opportunities to refine and optimize strategies.

Ultimately, treating negotiation as a structured process rather than an isolated event enables companies to adapt more effectively to changing market conditions, manage risks proactively, and drive better results across the supply chain. The iterative cycle of preparation, execution, and reflection is a powerful model for achieving sustained success in complex negotiation environments.

Craig Moss is director of member relations and supply chain transformation at the Digital Supply Chain Institute (DSCI). He is a leading expert on using management systems to improve compliance and risk management performance within companies and across supply chains. Craig is executive vice president of Ethisphere, and director of content for the Cyber Readiness Institute. He is on the board of directors for the Association of Professional Social Compliance Auditors (APSCA), and was chairman of the Licensing Executives Society committee for developing an ANSI global standard for IP Protection in the Supply Chain.

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