Contract negotiation can be tedious and challenging because of its nuances, but does it have to be?
What if there were contract negotiating tips that could help you become more successful at it? Contract negotiation is a game, and like every game, there are rules you must follow to become more successful. Like most games, people avoid participating because they do not understand the rules. It’s not because they are afraid to fail. In this article, we will rediscover these tips/rules for African supply chains and procurement teams across the continent.
So, what are the correct rules to follow in any contract negotiation process?
Contract Negotiation Tips That Guarantee Success
As mentioned earlier, contract negotiation is a game. But it is one with high stakes.
Negotiation is about getting the other party to agree to a set of terms that ultimately benefit all parties involved. The terms define the mode of operation, expectations, rewards, and certain standards or practices that must be followed by each party. Everyone has their role. A contract can make or break a business or supply chain. That is why it is effective negotiations are so critical.
The good news is there are sets of rules that allow you to be methodical about it.
Let’s explore some of them here:
Always Make The Supply Chain A Priority
When negotiating with any supplier, the goal of your supply chain should be the centre of that negotiation.
Of course, all parties involved know that, so you do not necessarily have to reveal this goal. But it should guide your negotiating process. News flash; for the other party, it is also all about them. Supply chains bring on partners because they are trying to solve a need. It could be an efficiency issue or a cost reduction issue.
If you are contending with these issues in the supply chain and your potential supplier can not guarantee them, there is no reason to Continue with the negotiation.
Primarily because the supply chain would have achieved nothing from the deal. It will only hurt it. Making the supply chain a priority will always guide the decision-making process. These could include the type of suppliers, where to find them, and how to negotiate with them. This way, the supply chain will get what it really needs.
But The Other Party Has To Win As Well
Remember that contract negotiation is only a precursor to the partnership between your supply chain and the new vendor or supplier.
For the supply chain relationship to grow and work out well, there has to be a sense of fairness from all parties involved in the contract. But if you strong-arm your suppliers, you may have a great deal of concessions, but when it comes to the actual work and delivery, it won’t be what you expected. After all, the agreement is only on paper.
The real battle is whether the supplier can or would meet up to the contract terms.
Going for the win may mean alienating the suppliers and forcing them to comply with all the demands. If they need the business, of course, there will be agreements, but your supply chain is at risk of disruption due to compliance issues and negligence. the trick is to have a balance. A great contract adequately captures the interest of all parties involved. It doesn’t have to be a 100% win-win for all parties, but it has to be fair.
Fairness is how to ensure long-lasting relationships through contract management.
There Must Be An Exit Strategy For All Parties
Some people may favour an ironclad contract, one that gives no room for error in the future.
While that is great, it can be devastating for either and all parties. Don’t fall into the trap of binding the entire supply chain to a contract that has no way out of it. Relationships could last a thousand years, and relationships could last a day. It doesn’t have to be anyone’s fault; sometimes, things do not go as planned.
Just make sure the supply chain has a way out should the partnership become less desirable.
An exit strategy could follow the If/Else approach or clearly stated expectations and consequences should the parties fail to meet these expectations. Great contracts with clearly stated exit strategies for both parties will always ensure an amicable agreement termination. Instead of one riddled with lawsuits.
Understand The Supplier
This tip leverages the “know thy enemy” principles.
This means never going into any negotiation without having adequate knowledge of the other party. There must be adequate and basic knowledge of the business you are negotiating with, the industry the business operates in, and the market trend of that industry. These are valuable information that will help you have a successful contract negotiation.
Detailed information on the party you are negotiating with helps you map out a goal for the contract negotiation.
Like tip number one, it also serves as a guide throughout the negotiation process.
Imagine you are negotiating with a logistics company, and the company’s representative hints that high gas prices are the reason for the high cost. It might be true, but what is the current trend? Is the price going up? Is the price going down? What are the factors keeping it? What if it’s not true? Is the price really high?
Knowing all these suddenly gives you an edge in the entire contract negotiation process.
Promote Transparency
All stakeholders appreciate transparency because it eliminates a lot of stress in the supply chain’s operations.
It is common for contracting parties to make concessions at the beginning of the contract and then gradually back peddle in the course of the contract’s duration. When found out, this behaviour could greatly impact your relationship with the supplier. But it is actually the lack of transparency that encourages it. Lack of transparency in the contract negotiations and terminology makes the supply chain operation a breeding ground for latitude.
The solution is to be transparent about everything.
Be transparent about expectations, values, payment terms, and consequences for violating the contracting terms. But also promote transparency during the course of the supply chain operation. It is important to avoid as much jargon as possible. Always stick to easy-to-read contracts.
Promoting transparency during negotiations is essential for the survival of any relationship between the supplier and supply chain.
Know How to Balance Emotions and Flexibility
Emotions and flexibility are two factors that greatly affect the outcome of any negotiation process.
They are significant because they are applied in different ways and levels throughout the entire negotiation process. Flexibility allows the supply chain to be flexible in its concessions. There may be pre-determined outcomes or goals. But contract negotiation can be very fluid.
If the contract negotiation’s overall goal and purpose are not impacted, flexibility can help get the negotiation process over the finish line.
On the other hand, we have emotions. They can be quite tricky in the supply chain. While organizations are more than the brand name and paperwork, they are still in the business of making money. Correctly applying emotions will help you make the right decisions at every point in the negotiation process.
Wrap Up
Remember that you never get away with anything during negotiation.
That is only possible if it is a one-off transaction. Whatever poor decision you make during contract negotiation will always fall back on the supply chain, so why not try to get it right at the beginning, especially while using the contract negotiating tips outlined in the article?
Never underestimate the impact of effective negotiation on the supply chain.
Obinabo Tochukwu Tabansi is a supply chain digital writer & ghostwriter helping professionals and business owners across Africa explore various strategies that work and learn from the success and failures of various supply chains across the globe. He also ghostwrites social content for logistics & supply chain businesses
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