“I don’t like it when procurement gets involved and takes over from our client in the General Counsel’s office,” this large law firm partner told me recently. “They don’t recognize our true value and just focus incessantly on price, like we’re a commodity. We’re not.”
Since I train a lot of lawyers and procurement professionals, I told her that’s often by design. If procurement can reduce the negotiation down to one variable – price – and you accept that notion, it strengthens their leverage.
This is a powerful procurement-oriented negotiation move. But it can also mask a common procurement mistake. Here are four common procurement negotiation mistakes (two this week and two next).
Mistake #1: Overreliance on price and undervaluing crucial goals and interests
Law firms and lawyers are not commodities. They differ substantially based on quality, effectiveness, expertise, efficiency, experience, responsiveness, etc. And price.
But price is easy to differentiate between bidders. Alternatively, it’s often challenging and difficult to evaluate individuals, companies, products and services based on non-price criteria and interests like customer service, long-term value, cost-savings, durability, reliability, honesty and credibility, responsiveness, flexibility, creativity, and the list goes on.
However, it’s crucial to prioritize and incorporate these interests into the negotiation and the ultimate decision – especially if your internal client values these as much or more than price.
Negotiation-wise, you don’t necessarily need to share these priorities (although in many circumstances you should). But they need to be accurately evaluated, even if price savings constitute an important element in how you’re graded.
The best price deal may not satisfy your company’s goals and interests.
I’m told one of the world’s largest retailers used to aggressively hammer its suppliers on price and treat them all as commodities – even when they weren’t. This strategy appeared to work short-term.
I understand its supplier base then started getting smaller, with some refusing to even bid. It changed its tune.
Mistake #2: Undervaluing the intangibles in the long-term relationship
Years ago, I did some intensive training and coaching for a Fortune 500 homebuilder’s procurement team. I remember one of them sharing his frustration with me that its CEO put his finger on the scale by directing them to strongly “consider” certain suppliers, including some higher-priced ones.
Why? Because this CEO had long-standing relationships with these suppliers’ CEOs. Was this a mistake? No. To the contrary, it’s a mistake to not fully consider the intangibles inherent in long-term, mutually beneficial supplier relationships.
When emergencies like COVID or problems occur, suppliers will prioritize those with whom they enjoy great long-term relationships. This can be a game-changer.
Latz’s Lesson: It’s easy for procurement professionals to focus solely on price and discount or ignore the true value of non-financial interests, including long-term supplier relationships. Don’t.
* Marty Latz is the founder of Latz Negotiation, a national negotiation training and consulting company that helps individuals and organizations achieve better results with best practices based on the experts’ research. He can be reached at 480.951.3222 or Marty@LatzNegotiation.com.