FRAMINGHAM (04/03/2000) - We often have the ability to generate significant negotiation power to achieve our objectives in any deal for a product or service. By creating a "zone of consideration" to evaluate and negotiate with more than one qualified supplier, we can leverage our control of the process.
But too many times we give away our power before negotiations even begin.
All too often, a scenario like the following occurs: A large bank I'm familiar with always seeks the best deal for its ongoing IT procurement function.
Normally, the bank performs an initial evaluation, narrows the field of potential suppliers, then solicits a "best and final" offer from each. After further evaluation, one offer is selected. The bank then notifies the selected supplier that it has won the contract, tells competing suppliers a deal has been made and arranges to negotiate the contract.
But recently, after being told that its "best and final" offer had been selected, the supplier raised new issues it wanted to negotiate before signing a contract. Because the bank had sent away all other potential suppliers, it lost its leverage. The selected supplier no longer had to worry about competing for the contract. As a result, it had no incentive to move quickly to finalize a user-friendly deal.
To make matters worse, the bank needed the products quickly. The selected supplier used this as leverage to get the contract signed. It had to do little more than wait, while the bank was faced with forking over more money to ensure timely delivery. Ultimately, the supplier got an additional fee from the bank, a fee that became an issue only after the bank's selection of the supplier's best and final offer.
You can reduce the risk for this type of problem by conducting negotiations with competing suppliers through a zone of consideration.
After an initial evaluation of offers, identify a small group of suppliers whose offers are most qualified. Then advise them that they've been selected, along with a few competitors, for further evaluation and negotiations through your zone of consideration.
It's critical that all suppliers understand the following points:
-- You will negotiate with each of them, based on their most recent offers, until you award and sign a contract with one.
-- Your evaluations of all qualified suppliers will continue throughout your concurrent negotiations. (Incidentally, you will learn incredible new things about some suppliers during negotiations that sometimes can actually change your opinion of them from a "must have" to a "never, ever.")-- You may choose at any time to discontinue negotiations with any potential supplier. Provided that you have negotiated all outstanding issues with a supplier, you can simply select that supplier immediately, without giving any other competing suppliers a last chance or a deal to beat (unless the selected supplier fails to promptly execute your contract). When suppliers know they will not get a "last look" or a "deal to beat," they get very serious about getting their best deal on the table quickly, because they fear they won't get another shot.
-- In light of these facts, admonish suppliers in the zone to make absolutely certain that they have their best current offer on the table at all times, because that may be their last chance.
The zone of consideration provides a framework for you to assume control over the timing and power in the negotiations. Maintaining the zone until a contract is actually signed with the selected supplier can reduce the chances that the supplier can gain further concessions by raising new last-minute issues.
What's more, you should complete contract negotiations prior to selection, since their willingness to provide a good contract should be one of your major considerations. Maybe just as important, the suppliers have an incentive to get you a great deal quickly, before another supplier snatches your business. This sure beats an arrogant selected supplier who gives you only pillow talk while you run out of time and fall into its hands like an overripe plum!
JOE AUER is president of International Computer Negotiations Inc.
(www.dobetterdeals.com), a Winter Park, Florida, consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High-Tech Acquisition Professionals. Contact him at email@example.com.