Why To Hate Fact-Based Negotiation, Part II

PurchTips edition #348

Are You Overly Reliant On Fact-Based Negotiation?

In the last edition of PurchTips, I shared my opinion that too many procurement departments are relying on fact-based negotiation as the only technique they use for negotiating. I wrote that, while fact-based negotiation should be a tool in the procurement negotiator’s toolbox, I feel that it should not be the only tool.

I listed two reasons I hate fact-based negotiations as the only approach to negotiating. Here are two more reasons:

  1. It fails to get willing risk-takers to take risks. Sales and marketing professionals take risks all the time. For example, a TV advertising campaign may be profitable or may lose tons of money. These people are willing to take chances with their pricing. There may be a covert reason they’d be willing to take a loss on your business. They may be willing to factor in speculative factors, like forecasted productivity improvements or ability to bring certain work in-house, in order to recoup early losses with future profits. Procurement negotiators’ “should cost models” focus on facts as they are today, not risks that a supplier may be willing to take. Instead of focusing only on should cost models, procurement negotiators should also try to uncover “will sell for models.”
  2. It’s a stretch to think you can have more accurate information than the supplier. Today’s procurement negotiators should know their markets inside and out. But few procurement departments are staffed in a way that realistically allows their team members to conduct market research that will match a supplier’s 100 years of experience. While a supplier will know exactly how many labor hours are needed for production, what materials will be obtained from what tier-2 suppliers at what prices, what cheaper materials or tier-2 suppliers are not advisable to use, and so forth, the buyer can only hope to have that much information. Except in rare circumstances, the supplier will always have the advantage in fact-based negotiations. Why play to the supplier’s strengths?

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