Improving Your Sole Source B2B
Charles E. Rumbaugh, J.D., C.P.C.M.
Arbitrator & Mediator
PO Box 2636, Rolling Hills, California 90274
The professional buyer today is increasingly facing the difficult challenge of negotiating and closing deals with sole source suppliers as those suppliers, in part, “retrench” their core businesses.
How the professional responds and adapts to the myriad of sole source situations is critical to organizational (and professional) survival.
This session will review some of the issues associated with improving professional skills in sole source B2B negotiations.
The Challenge/Opportunity. How do world class customers respond and react with/to the following difficult B2B negotiations situations/questions wherein professionals are confronted by “take-it or leave-it” offers from sole source suppliers/providers of goods.
1. How do you and your organization address those sole source suppliers OR their offers? Is there, or can there be, “really” be any negotiations with sole source suppliers?
2. “After” trying “partnering” or other “relationship-enhancing” negotiating methods, what is next in your “negotiation arsenal” in order to (attempt to) come to (fair/reasonable) agreement on price?
3. Are you and your organization “stretched” in trying to have sole source suppliers participate in fact-finding and/or product/price/cost information sharing (fact-finding)?
4. Why do some suppliers (actively) participate in the negotiation “dance?” Can some of those “lessons-learned” be adopted for sole source negotiations? Why do some decline to participate in the “dance?”
5. Finally, can the professional buyer “encourage” or “incentivize” sole source suppliers to dance-the-(negotiating) dance by making reasonable and realistic offers/counteroffers?
All of these situations/questions are explored as the B2B challenge and opportunity for the professional buyer.
Highlights of Session. Focus will be on many of the critical facets of the negotiation process. First, as an introduction where does negotiation fit within the spectrum of dispute/conflict/non-agreement settlement techniques?
That spectrum is usually described as originating from the avoidance stage and ranging to the courthouse/litigation stage or as sometime stated, “from that which is within the most active control of the parties to that which is under the least control of the parties,” i.e. where they delegate resolution of the particular dispute/conflict/non-agreement to the litigation forum—judge/jury process and usually through advocates or attorneys as representatives. Within this spectrum from the initial step of “avoidance” one could “progress” from avoidance to negotiation, joint negotiations/partnering, facilitated negotiation or mediation, fact-finding expert, non-binding arbitration, binding arbitration, summary trial, and finally to and through litigation.
For purposes of this session it will be assumed that the professional buyer has decided upon “negotiation” as the particular deal formation “technique” of choice since everyone in the commercial-world normally has the freedom to contract or not to contract. Next, what strategy or strategies will the buyer and/or supplier utilize in those negotiations? Which ones are available to the buyer/seller? Which ones are of utmost importance in sole source negotiations? Let’s look at some of the basic strategies that a buyer should have cognizance (also see References below for greater discussion of each strategy).
What are those basic strategies?
2. Yielding or Accommodating
3. Contending or Competitive or Win/Lose Negotiations or “Distributive” Negotiations
4. Collaborate or Win/Win Negotiations or “Integrative” Negotiations
What is a BATNA (Best Alternative To a Negotiated Agreement)? What is your BATNA? What is your supplier’s BATNA? Do you know? Do you care? You should!
Very importantly, do you have the power to walk away from the negotiations because of your BATNA? Or, since it is a sole source negotiation, do you perceive your options are limited, i.e. there is no alternate source of the goods and hence you “can not walk away from the negotiations”? Consequently, we return to the underlying question—in preparation for a sole source negotiation do you plan to have a BATNA? And, to repeat, you should!
Contending or Competitive or Win/Lose Negotiations or “Distributive” Negotiations. When does the Distributive negotiation strategy come into “play” for the negotiation dance:
· The “pie” is fixed—resources are considered limited.
· Need for a continuing relationship usually not there.
· Essential attributes:
ü Each party has an initial offering price, target price, and resistance point. What is the negotiating/bargaining range? Is it “positive?” What are the planned concessions?
ü Objective is to reach a settlement point within positive negotiating/bargaining range.
Collaborate or Win/Win Negotiations or “Integrative” Negotiations. When does the Integrative negotiation strategy come into “play” for the negotiation dance:
· The “pie” (resources) is not fixed.
· You want and need an on-going relationship with the other party.
· Each party has an interest in working toward a solution to their needs and, most importantly, the other needs of the other party!
· Essential attributes:
ü Founded in trust and openness and the mutual desire to resolve all problems with an emphasis on interests (the answer to the “why” question) of each party!
ü Collaboration the key!
ü Problem solving and creativity play an important part—resources are not fixed!
ü Motivation is to work together!
Does the “truly” sole source supplier fit into either/any strategy? Is there a “positive” negotiating/bargaining range in these sole source transactions? At the initial step there may be a “negative” range and, thus, the perceived sense that there may not be an opportunity for a (fair and reasonable) agreement on price (from the buyer’s point-of-view).
What is their incentive to do the negotiation dance? Why do suppliers need to “bargain” if they are in the sole source preferred position? How can you “encourage” or “incentivize” them to any strategy? What is a “fair and reasonable” price and, to whom, in that sole source situation? What information do you need in order to determine what a fair/reasonable price should be? How can you obtain that information from a sole source supplier? What are the bounds in an unregulated commercial marketplace where the buyer/seller have the freedom to contract? What “drives” the parties to arrive at the ultimate price under the circumstances of a particular sole source sale where the delivery schedule and other aspects are inflexible?
Accordingly, in some of these situations you may find (as others have) that there is no (real) incentive for that sole source supplier/seller to provide the information, or for that matter, “negotiate” a fair and reasonable price, unless later in the “process” that supplier/seller would look “unreasonable” if they had not provided the information and/or participated with good faith offers/counteroffers expected in price negotiations. Building upon one aspect of the above mentioned “spectrum” of methods used to resolve impasses/disputes, and within the umbrella of “binding arbitration,” is the negotiation strategy of “Baseball Arbitration.”
Baseball Arbitration can be briefly described as a methodology for the parties in any “difficult” negotiation to each openly submit their last and best offers to an arbitrator knowing he/she has the authority to make a binding (arbitration) decision by selecting one of those offers as the award! Using this process, the parties know what the outer limits/range is, and thus the final resolution of the price. Accordingly, they have an incentive to negotiate! In a commercial type transaction that has limits upon reasonable alternatives, Baseball Arbitration is a viable alternative which has been found to be of assistance to negotiating parties. Furthermore, it could be of assistance in obtaining crucial product information (fact-finding) from sole source suppliers to facilitate those “negotiations.”
Baseball Arbitration ensures that the negotiation process is NOT open ended and there is an end result. It has been found by some to provide an answer to this “negotiation/process” dilemma by “motivating” these suppliers to look “reasonable” by providing reasonable product information and, most importantly, negotiating in good faith! In the absence of making realistic offers/counteroffers, i.e. “bargaining/negotiating,” their price may ultimately be deemed unfair/unreasonable by the Arbitrator. This risk is normally unacceptable to suppliers and, thus, they are “compelled” to dance-the-(negotiating) dance. Baseball Arbitration is a technique that provides the impetus for the parties to have a reasonable and realistic BATNA where otherwise they may not have one in that critical sole source negotiation. Their BATNA is the other party’s last offer! Consequently, very rarely do the parties actually resort to arbitration using the Baseball Arbitration strategy since they find an agreement!
What is your BATNA is a sole source negotiation? Do you have one? Does your supplier have one? Do you need one that defines the “bargaining/negotiation” range so that it is positive and thereby amenable to a distributive negotiation strategy? If so, consider Baseball Arbitration and you may find, as others, that the “first price offer” from your sole source supplier may not really be their last offer!
“What Is Mediation?” (July 1999)
“Mediator Subject Matter Expertise” (January 2000)
“Baseball Arbitration I” (July-September 2000)
“Baseball Arbitration II” (October-December 2000)
Lewicki, Roy J., David M. Saunders, and John W. Minton.
Irwin McGraw-Hill, 1999 (3rd edition).
Secrets of Power Negotiating.
Frankin Lakes, NJ:
Career Press, 1999 (2nd edition).