A negotiation is the interest-driven tug-of-war to attain an agreement. This may be purchasing hardware, agreeing a service or other reconciled interests. The assumed relationship between the negotiators has a great influence on the negotiation. If an applicant is in a job interview, the question, who offers what, is crucial to the relative negotiating position. In the case of cheap labor, the applicant is in a lost position, because the next one is already waiting for this chance. Rare specialists are more likely courted and thus are in a better position. These black-and-white situations are rather easy to cope with. It becomes difficult, if a conversation partner devotes himself to the illusion of holding all the trumps in his hand and gambles without measure. A few prerequisites have to be created in order to have negotiations on a level playing field with reciprocal satisfaction. Then mutual enrichment is reachable.
In real negotiations both parties have to offer something and the outcome is open. Only when this starting point applies to both, it is worthwhile to invest time into the negotiations.
- Sufficient information
Even if it sounds banal, the availability of the relevant information is crucial. This does not only mean that you get the desired information, but also that you have the obligation to provide relevant information. This information does not consist only of length, width, weight, quality, or price, but also includes the expectations of the contracting parties, which are often hidden behind the object of negotiation. This does not mean, however, that all cards are put on the table from the beginning. It is more important to give at any time a satisfactory answer to the questions of the opposing party. The difference between tactics and the state of not knowing results from one’s own preparation, which has to be done in advance. It is an important expression of mutual appreciation. The parties continuously receive that way a better insight. This allows both sides to approach each other.
- Ensure feasibility
The negotiating items are often not specific enough that one would be able to compare one alternative with the other. The effort involved in a project is determined by the difficulty, the components, the quality, and it often depends on the cooperation of the customer. The description of these framework conditions is never accurate enough that one could derive exact estimates from it. The first and most important step is that the negotiation object, what the customer expects, is feasible. The client is usually represented by several people, who might have very different ideas. In the interest of feasible outcomes, sufficient information about all requirements and the offer is crucial. The feasibility is the easier to recognize, the clearer the assignment is for both parties. On this basis, it an agreement materializes, or not.
- Live and let live
The real contractual object is the price. Actually it is not necessary to point out that the buyer wants to achieve as much as possible for as little as possible, as well as the seller fights for as little as possible for as much as possible. Nevertheless, there are always negotiating partners who think that this issue is unknown to the other side. It is smarter to choose a more understanding approach. Striving for a good price and a suitable offer is legitimate. One’s attitude determines the acceptability for the other in the negotiation. It is not an advantage to bamboozle the contract partner. In the worst case, it hurts him so much that he is no longer available – which becomes one’s own disadvantage. That’s why: Live and let live.
Negotiations have a clear goal – achieving a closing. Considering the expenses that both parties put into the needs-oriented preparation, it is inconvenient for both, if the closing does not materialize. However, to make a conclusion, the key is the magic word “compromise”. Everybody has to approximate the respective situation and each other’s expectations. This leads to the adaption of some requirements – e.g. a price limit, a desired range of services, an overstated claim to the result quality, and cheeky excessiveness. In order to nip later dissatisfaction in the bud, it is absolutely necessary to bring the facts into a form which adequately outlines the requirements and deliverables. The final contract is the framework for the delivery of the service. Potential changes should be documented later on, to avoid unnecessary frustrations.
Bottom line: Many people have already talked about the prerequisites for negotiations. In any case, it is crucial to provide sufficient information, to focus on feasible areas, to ensure your own life and the life of the other side, and, above all, to eventually reach a printable conclusion. Now nothing remains to reach a mutual enrichment.
Henry Ford introduced that assembly-line. He was inspired by Taylorism and also made efforts, to get all levels of value creation under his control. For this purpose his enterprise had temporarily one hundred percent depth of production – plantations for rubber, glass factories, steel plants and power stations for the required energy. The automotive depth of production is on average approx. 20 percent. Thousands of suppliers share three quarters of the value of a car, from simple rotary switch to complicated injection or navigation systems.
Now, for the first time, this decrease of production depth has to be paid for. It took the small supplier’s years, but now they seem to be on eye level with those, who ruled the prices for years with their market power. At VW the production lines stopped, because obviously purchasing gambled away. Are we standing in front of a cooperative metamorphosis between manufacturers and suppliers?
After VW sound the bell for the last transformation, when they hired José Ignacio Lopéz and brought suppliers a new role, VW can not do other than delivering a reorientation concerning the interdependence between manufacturers and suppliers. The stop of Golf production in Wolfsburg that presumably creates for 20,000 employees short-time work is the wake-up call for the entire industry. The following mechanisms burdened the harmonious cooperation over the years.
- Adjustment of the supplier portfolio
After the internal improvement efforts and due to the low depth of production, there are not so many opportunities for reducing the expenses. All that remains is reducing the costs for the externally delegated 80 percent. In the absence of monetary incentives, the outside vendors could only be provided a benefit with the privilege of being part of the supplier circle. This means sometimes that they can participate to bid and to receive the traditional title purveyor to the court, as so-called strategic suppliers.
- New pricing models
Only the enormous quantities offer a large lever that result in favorable conditions and prices. The huge numbers of items are the incentive for the suppliers. Simultaneously the timely and variant-oriented deliveries require further resources that additionally diminish the yield.
- Exhausted terms of payment
The payments are not aligned to the need that the suppliers receive their money quickly, but they are based on the financial reporting dates. Consequently, the supplier carries the expenditure of the financing. This means that we talk about six months of prefinancing in the case of the procurement of material. However, there is no payment after delivery, but manufacturers wait, based on agreed payment targets for over three additional months to eventually pay their dues. The bridging of these time spans has to reproach the supplier – beside the raw materials, the wages and salaries, the storekeeping, the operation of the infrastructure etc.
- New forms of negotiation
The personal negotiations in private that were the basis for trusting cooperation, are replaced by formal tender procedures and electronic forms of negotiation. The personal contact is removed from the businesses. This leads to quasi-automatic decisions based on good value for the money and general quality standards without personal impressions.
- One-sided contract terminations
In many purchase departments still prevails the illusion to sit at the longer lever, since there are world-wide enormous amounts at suppliers, who seem to be ready to deliver at lower costs. This results quickly in the fact that a supplier, who falls in disgrace, will be eliminated in the blink of an eye.
- Risk delegation to the suppliers
The upstream procurement of material and the stand-by resources increase the risk unilaterally to the disadvantage of the suppliers. If a contract expires or the manufacturer terminates a running contract, this can quickly lead to insolvency.
The possibilities to reduce the costs at the expense of the suppliers reached their limits. Also suppliers use outsourcing into country with low-wages. However, considering the narrow margins and the interdependence, new models for cooperation have to be found. The required exchange of information must take place mutually and count on Win-Win. In the future it will be essential that the buyers will be in personal contact with the suppliers, in order to get a local impression and to get in such a way to realistic estimates. The persistent compliance that was introduced particularly in the interest of the shareholders did not prevent abuse by particular people and harms cooperation.
Bottom line: Interaction between manufacturers and suppliers must be brought to a new level of confidence and joint benefit. The distribution of the value creation needs a reorientation in the economy and even for the politicians, who nowadays stand up for VW although they silently sat out the precarious situation of the suppliers for years. At the end of this phase the industry will be empowered, since the current inclination will be balanced out. This metamorphosis will again weld together manufacturers and suppliers, since the one cannot without the others.