@Risk

New research from Vantage Partners, in partnership with the International Association of Contract and Commercial Management (IACCM), the Institute for Supply Management (ISM), The Conference Board, and Sales and Marketing Executives International (SMEI), highlights the importance of building systematic and collaborative negotiation strategies with suppliers. I’ve posted before about how collaborative suppler relationships are fundamental to any risk management program, and this study takes it a step further, deep diving into the business value close relationships can provide, particularly with regard to contract negotiations.
Specifically, the study found that organizations which have aligned their negotiation strategies with their category management and supplier relationship management strategies realize 59% more value from their supplier contracts, compared to organizations that do not formally define negotiation strategies. Unfortunately, though, until companies upgrade their negotiation strategies, most of the value expected to result from strategic sourcing efforts remains unrealized.

Here are key findings from the customer-supplier negotiation study in more detail, as outlined in a press release:

• A significant portion (on average, 45%) of the value expected to result from strategic sourcing efforts is not realized.

• Buy-side respondents report realizing only 54% of potential contract value from suppliers during implementation; while sell-side respondents grade themselves somewhat less harshly, on average, they report delivering only 66% of the potential value in their customer contracts.

• Companies that use a more collaborative (versus adversarial) negotiation approach realize greater value from their contracts (with both customers and suppliers).

• More than 75% of all buy-side and sell-side respondents believe the other side has more leverage in the negotiation than they do.

• More than 50% of buy-side respondents believe that the following are significant or very significant barriers to realizing greater value from sourcing contracts:  end users / technical staff working around the procurement process, lack of preparation by those involved in negotiations, and lack of stakeholder alignment.

• Organizations with a formal negotiation process report superior results compared to those without; buy-side participants with a formal negotiation process report achieving 27% more of the value they target through strategic sourcing efforts.

• Buy-side respondents that reported having both a formal category management process and a formal SRM program were 8 times more likely to be in the top 25% of buy-side respondents (versus the bottom 25%) in percentage of contract value actually realized during implementation.

• As mentioned above, organizations that systematically develop negotiation strategies that are aligned with their category management and supplier relationship management strategies  report realizing 59% more value from their supplier contracts than organizations that do not formally define negotiation strategies.