Today we’re going to let our readers in on a little secret. Actually, it’s a big secret. It is one of the most powerful strategies that you can deploy in a sourcing engagement. And based on our research, it’s one that is almost never used.
Background
Many times sourcing projects terminate in a series of one-sided negotiations where the buyer uses the negotiations to seek concessions from the supplier. While initially noble, these sessions typically devolve to traditional purchasing barbarism such as encouraging more pencil sharpening, jugular targeting, and constantly repeating the threat of lost business.
Regardless of whether suppliers capitulate or hold their ground significant value has been lost. Most suppliers have long memories and it is difficult for them to want to participate as business partners after being thoroughly raked over the coals. Even worse, now that the contract has been signed, they often try to make themselves whole by redefining the business structure and establishing new levels of service performance commensurate with the negotiated price.
Traditional negotiations ask suppliers to do more for less. At best they ask suppliers to do more for the original bid. It is only fair to ask suppliers what they are capable of delivering. Before negotiations finish it is vital to ask your suppliers one key question: “What would you do with more?” Be aware, though, a couple things are going to happen:
1) You’re going to get a goofy smile from the supplier. You might have to reassure them that they aren’t dreaming.
2) Next, you’re going to have to pick said supplier up off the floor. We can guarantee you in a lifetime of negotiations they haven’t been asked this question and have just been floored.
3) You’ll be asked to clarify what you mean by “more”. Simple. More is the amount you’d be willing to pay or contribute for something of value. You, the supplier, need to let us know what that is. For a large spend category you might get the supplier started by defining more at three levels: $50,000, $100,000 and $500,000.
The Concept of “More”
If you had $500,000 to invest of your personal savings would you give it to someone who had no idea what they’d do with it? Suppliers and the goods and services they provide are investments.
- Good investments yield outsized returns and generate a spread over other competitive investments
- Average investments match the market and while attractive do not provide any marketplace advantage.
- Poor investments lose money vs. the market.
Asking a supplier to do more with more often generate new trade offs in cost and service. We now have additional data points to benchmark services traditionally owned or controlled by us (handling, storage, delivery frequency, information reporting, stakeholder experiences) and understand what they are worth to the supplier. Often times these can be arbitraged by paying a small premium to the supplier and shedding a more costly internal practice.
Conversely, if a supplier has no new ideas on the additional value they would provide with more resources then they are not the right long term supplier. You may be able to coach this supplier into providing value, but they are missing the boat. They view their product as one that can’t be differentiated and one that doesn’t warrant a price premium in the marketplace.
To close, the next time you talk to your suppliers, ask them what they’d do with more. Stand back and listen. You have just Mpowered yourself and taken the supplier relationship to the next level of value.
The Mpower Group will pay $50 to the first reader who can provide a case study of how they delivered value by asking a supplier to do more with more. Please submit your responses to: jeffh@thempowergroup.com .