Procurement Negotiation: A Guide to Managing the Process

Negotiation means different things to different individuals. The word may have conjured a heated debate at a large boardroom table. One party wins while the other loses after high tensions and blood pressure. Successful procurement negotiation are about strategic connections and win-win situations, not winning or surrendering.

Purchase negotiations don’t have to be scary. Successful procurement agreements have several benefits.

We’ll explain each procurement negotiating procedure so anyone at your firm may enter their next meeting empowered.

Why the seven procurement negotiation stages matter

CIPS lists seven steps in purchasing contract negotiation:

1. Preparation
2. Opening
3. Testing
4. Proposal
5. Bargaining
6. Agreement
7. Closure 

Stage 1: Preparation

In procurement talks, preparation helps. The important preparation stage gives you and other stakeholders the confidence and clarity to ace a supplier negotiating encounter.

Ask yourself these questions while doing your negotiation homework:

• Do this SaaS product’s goals match ours?
• What is this purchase’s budget?
• Have we thoroughly investigated this supplier and their solution?
• Should we ask the provider important questions?
• Other than price, what matters?
• Can we compromise on things without hurting the provider or us?
• What should I tell the CPO, CFO, or decision maker?

Stage 2: Opening

You should have no major surprises during the opening since you prepared and procured. Your procurement and SaaS provider teams should outline negotiation goals at the start. If the supplier’s meeting arrangements differ from yours, everyone will know before misconceptions cause conflict.

Consider the opening stage like a restaurant where the server repeats your order to make sure they got it right. Before the chef prepares, it’s easy to modify the order and negotiate when everyone agrees.

Stage 3: Testing

The testing stage of a procurement negotiation is when both sides understand their priorities and can make concessions.

Active listening is your best contract negotiation tool. You and the provider should ask questions and listen during testing.

Procurement experts acquire understanding and influence by actively listening to suppliers’ priorities. Knowing their priorities also helps you see where they can compromise.

Stage 4: Proposing

You submit your goals to the provider during the proposal stage of negotiation, and they do the same.

It’s OK to take a break in a face-to-face meeting if you discovered something during the opening and testing stages that requires you to change your proposal. Give yourself time to adjust your bid depending on your new knowledge.

Stage 5: Bargaining

If both sides like the proposal, you can forgo negotiation. During this step, you and the supplier may compromise.

You’ll use your testing knowledge when negotiation. Remember how active listening helped you find supplier compromises?

Bargaining requires flexibility and openness to change. Instead, be flexible and the provider should be too.

Stage 6: Agreement

Whether in person or in writing, this is where both sides reach a deal.

I love handshakes, but they’re not legally enforceable, therefore we don’t endorse them instead of an agreement. Instead, get both sides to sign a written agreement. To track contract changes over time, parties often make incremental updates and save them in a single repository using document version control. A written agreement will assist avoid contract breaches if the supplier’s representatives you negotiated with quit the company.

Stage 7: Finish

Making sure both sides have the written agreement and calling the procurement negotiation strategy complete is the final step.

4 benefits of procurement negotiations

Most people think about saving money when they think of negotiating. Negotiating in procurement saves money, but there are additional benefits.

Cut expenses

Besides cutting prices, negotiation may cut costs. How? Issues might be found during the negotiation process.

In the event that your SaaS solution requires third-party integration, your supplier may not have included the cost in their proposal. This cost adjustment could derail a budget-conscious SaaS project. Negotiation provides enough chance to reveal this omission.

Make tracking KPIs easy.

Are there KPIs you must disclose to leadership to demonstrate your new SaaS product’s effectiveness? If so, putting them in your negotiating proposal ensures the supplier can provide them and helps you determine if you need different KPIs.

Considering other contracts

You and the supplier worked hard to create a mutually beneficial master contract or service level agreement. There may be other contracts outside your master agreement.

Supplier contracts will likely be known before negotiating. If not, procurement negotiations are the right moment to resolve everything.

You may want to include the supplier’s contract in the master contract. If there are conflicts, incorporate a language that states the master contract takes precedence over other agreements.

Find methods to add value

During procurement negotiations, this supplier and SaaS product may offer value-added benefits. You may not have known about their customer panel or annual conference. Both value-added benefits let customers share their ideas and criticism. It also lets the SaaS provider hear your input and consider improvements.

Negotiating payment arrangements may boost your bottom line in the short and long term.

Successful contract negotiations build long-term supplier relationships.

Successful procurement negotiating tips

Improve your procurement bargaining skills with these professional advice.

Forget your ego in procurement negotiation

Despite your preparation, procurement negotiations aren’t personal. Replace defensiveness and animosity with empathy. Avoid appearing to manipulate or exploit the supplier to get what you want.

Be flexible and open-minded

Negotiations rarely go as planned, which is fine. Avoid a “set in stone” perspective by actively listening and adapting as you learn.

Negotiation training ground tips:

View the room.

Look around if meeting in person. Are others generally happy?

Body language can reveal unpleasant feelings. Chris Voss, a veteran FBI hostage negotiator, advises tactical empathy to dissipate negative body language.

Silence is gold

Negotiations can be awkward with silence. But a secret: your quiet may inspire the supplier to say more or give you both time to consider.

Mastery comes from practice.

No ‘common negotiation.’

Negotiations will likely go differently. Learn from every negotiation.

See our software negotiating best practices for more negotiation strategies.

Supplier perspective on procurement negotiations

To stand out as a great negotiator, consider the negotiating process from the supplier’s perspective. Supply chain professionals managing big SaaS stacks anticipate to prioritise short-term metrics and zero-sum bargaining due to time constraints. The supplier will likely negotiate differently.

The provider will likely spend time knowing your business needs, interests, goals, and personality style.

They will thoroughly research why you want their product. Is this new to simplify manual processes? Does it replace a failing SaaS product? Have current suppliers requested unfavourable contractual changes?

Consider how your supplier may be preparing for negotiations. You can negotiate procurement with empathy and preparation if you know this. Continuing this will establish key supplier ties.

Vendor’s procurement bargaining advantage: Everyone wins.

Negotiating procurement can be complicated and time-consuming. This is especially true if you lack negotiation experience. If you don’t know about the tools or product you’re bargaining for, such as rivals, price benchmarks, and market trends, you may feel at a disadvantage.

Do you want the greatest bargain but don’t have the time or patience to negotiate? Outsource your discussions. Negotiation professionals maximise leverage and negotiate the best terms with domain skills and strategic understanding.