Supply and demands
“Rebecca Ellinor, managing editor, Supply Management” width=”100″ height=”100″ />Relationships are about give and take, and so it is with negotiations. If you insist on bullying suppliers on every point, do you think you’re really going to get your way in the long-term? No, is the answer (if you’re still unsure) and powerful milk purchasers recently found that to their cost (literally).
As we report in this issue’s news focus, milk buyers have long been seen as having the upper hand in the supply chain, able to dictate prices to farmers. But as these companies tried to pushthrough recent planned price cuts, producers hit back and won.
Now not only have big dairy companies withdrawn their demands, some are sitting down with farmers to consider a fairer plan going forward, which includes looking at more transparent milk procurement and pricing models.
However, while the balance of power seems to be shifting in this instance, only a third of procurement professionals quizzed for the latest SM100 poll believe suppliers wield more power than five years ago.
One who thinks there has been a change said: “Some suppliers focus only on customers who will enable them to grow their own business.” In short: be warned. Going into a negotiation with the aim of winning every single deal point is a flaw, not a strength. Mike Inman, a former CPO who is speaking at the CIPS Annual Conference in London next month, makes that very point in this issue. He warns that while you need competitive drive, sometimes being too competitive in the short term leads to unintended long-term negative consequences. “It’s important to concede some points during a negotiation and not simply focus on price,” he adds.
One area that research suggests needs improvement is the planning that occurs before you even get to the table. Setting objectives from ‘ideal’ to ‘realistic’ to ‘walk away’ is paramount, says Sue Preston, who adds that what you say at the start of a negotiation should encourage the other party to move towards your way of thinking, not away from it.
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Supply and Demand affects every aspect of procurement from category eg supply of pen, paper and even milk (mulitple small purchases of single items) to significant infrastructure (single large purchases). It is constantly changing influenced by invisible forces and not necessarily within the country of origin. When looking to improve business performances procurement managers need to be aware of how supply and demand is affecting the market place and how fundamental economic theory has influenced this. Good project planning and good understanding of market place conditions in the context of wider economic conditions will provide the procurement manager with the best insight into the problem and allow him/her to develop the best strategy to use in negotiation and best long term solution for everyone.