Purchasing Training ~ The Biggest Negotiation Concessions Happen Under Pressure

by Omid Ghamami

The Biggest Negotiation Concessions Happen Under PressurePurchasing Training ~ Negotiation Pressures

Some of the most visible high stakes negotiations happen right in front of our eyes, in professional sports.  Whether or not you enjoy watching sports, there’s no denying you can learn a lot by watching tense negotiations feverishly work themselves to a conclusion.

The National Football League (NFL) for instance has a last day of every year where they can sign certain players to long term deals.  That day just passed this past week.  Stay with me and let’s learn something about negotiation strategy that you can apply, starting now.

The best players on a team that are not under contract can be given “franchise tags”, which in short are one year deals that can be unilaterally placed by a team on a key player whose contract is expiring.  Players don’t like these franchise tags because they don’t give long term security, and so they often don’t sign them.

Last week, as the deadline approached to sign franchise tagged players to long term contracts, all eyes were on two wide receivers.  I won’t get into their names, because it’s not relevant to this negotiation blog, but they were on the Denver Broncos and the Dallas Cowboys.  You may know who I’m talking about.

Both players chose not to sign the one year franchise tag contracts that were put on them by their teams.  Both players threatened not to play at all if they weren’t signed to a long term deal.  This same drama happens every year, but it’s fascinating to watch it play out.

How many times has it happened that you are negotiating with a supplier, and you have a date by which you MUST get negotiations closed to enable end user deadlines that are critical to the business (such as building construction or direct materials parts or many other examples)?  This is the exact same scenario in this NFL example.

Often times neither party speaks to each other at all in these sports negotiations for protracted periods of time, intentionally.  They want to see who blinks first.  Does this strategy work?  Many times it does!  No communications can make the other party go nuts, even if they supposedly have all the leverage.

Why aren’t they contacting me and making offers?  What are they thinking?  Should we contact them?  Do we lose leverage if we break the silence and contact them?  Players and their agents lose sleep over these scenarios.

The deadline loomed and the day of the deadline was at hand.  Minutes before the deadline came for both teams, record deals were announced for both players.  It was a win-win in that both teams got to keep mission critical players, but surely they caved under the pressure to give those kind of deals.  The players got nothing less than the biggest deals they could have possibly secured for their position and for their skills.

Urgent negotiation timelines worked to the player’s advantage.  The franchise tag was a unilateral designation by the team, which makes the player lose leverage.  However, the players shifted negotiation leverage back to themselves by not signing the franchise tag contracts and claiming they won’t play without a long term contract (which may or may not be a bluff – but can the team risk that?), and letting the team sweat it out as the long term contract deadline loomed.

It’s a game of “who blinks first”, and when deadlines loom, all the leverage shifts to the party who has less to lose with the deadline coming and going without a deal.  That’s why suppliers will often times let negotiations stall and move slowly when they know you have impending deadlines.  Don’t let them do it.

You have to be an expert at recognizing who has negotiating leverage and why, and recognizing how to minimize your areas of exposure and knowing the supplier’s areas of exposure, not so you can take advantage of them, but so you know they can’t take advantage of you.

Specifically, you need to know what % capacity your supplier is operating at (this applies with both goods and services – idle labor is the same as idle manufacturing equipment).  The lower the %, the more likelihood that they must land the deal with your firm, so they can spread their fixed costs over a greater number of units and dramatically improve both revenue and profitability.  Walking away isn’t an option.

You also need to know if your supplier wants to book revenue before the end of a looming fiscal period.  Ask them if there is a target date for the PO if you strike a deal with them. Their answer will tell you if they need to book the revenue by a particular date or not, and will tell you exactly how much negotiating leverage you have.

Remember, the biggest negotiation concessions happen under pressure.  I don’t advocate win-lose strategies that induce pressure or take advantage of supplier pressure, but if a supplier is willing to go all out to get your business, you need to know that in advance and let them earn your business.

Be your best!

Omid G

 

 

 

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