Historically, procurement offices are understaffed in relation to the vendors with which they work. Procurement officers, for instance, work with large numbers of vendors while the vendors may build relationships with just a few buyers. This means that the sales representatives almost always have more time and are better prepared for a meeting than the procurement specialist. Vendors come with presentations filled with market intelligence because they have a lot of opportunities for discussion with their marketing departments, which the procurement department almost never has.
So, much of the challenge is not whether one can negotiate well, but what sort of information is available that can strengthen the negotiator's position. Even a bad negotiator with good information and good preparation can outperform a mainly good negotiator with poor knowledge. Good procurement officers can develop techniques for eliciting bits of market information from vendors over time.
Many companies have adopted just-in-time supply techniques as a way to drive down handling and distribution expenses. It works, but it also introduces some risk into the system. A problem with the supply chain can halt a production line because there typically is no backlog in onsite supplies.
Procurement professionals, who are under constant pressure to reduce input and handling costs, also must develop ways to assess vendor capabilities to make quick changes, provide products on short notice and deliver reliably.
Contracts may not be the best solution in every supply relationship, but they are growing in frequency, particularly in the United States. U.S. companies tend to be more sensitive about locking in relationships by contract. The flip side, of course, is that suppliers also can use the contracts to cover themselves.
The answer is to find the right balance between intensely contracted and more casual relationships. Contracts can range from a list of agreed prices to complex relationships related to supply risk, delivery terms, packaging conditions, lead times and so on. At the upper end, contracts may call for vendors to provide dedicated analysis and assistance in production.
To be creative in negotiating such complex terms can require a level of legal knowledge to be certain that the legal terms in use in the contract are understood. This places an additional burden on procurement staff as it looks for opportunities to add value creation as well as price reduction to supplier relationships.
When vendors aren't able to lower the price of a product, negotiations may begin to look at other parts of – other budgets within – the vendor company. One key area is marketing. Procurement officers may find it necessary to be knowledgeable about marketing and to have an understanding of their own companies' marketing programs.
As part of the expected value creation, a procurement officer may begin the process of negotiating co-marketing agreements in which the two companies will work together to promote the buyer's products or services. This requires deep knowledge and strong relationships as companies will want to protect their reputations.
It can be quite amazing that a lot of companies don't know how much they actually have spent on procurement. Particularly for the large companies with subsidiaries or overseas arms, they have completely different management systems that do not "talk" with each other. They are not able to effectively consolidate data.
In addition to clouding the spending picture, it can create inefficiencies because elements of the same company cannot compare prices paid or otherwise work together easily. One answer is to output the necessary data into standardized comma-separated values files that can help in the creation of formalized, spreadsheet tools for tracking and analyzing procurement data in a matter of a few seconds.