How to prepare successful business negotiations

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Achieving good results in business negotiations can be tricky. Many people are afraid of negotiating: leaving unlocked value on the table. As long as negotiations are done with a win-win mindset, they are usually positive long term for all parties involved.
As always, a good preparation is useful for the result. Here is a guide for how to prepare

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Outsourcing of procurement activities

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Indirect spend (non-product related) often represents 20%-50% of the whole purchasing spend at a company. But many companies don’t really focus on this spend due to many reasons, e.g: lack of resources, lack of time and main focus on direct material spend.

After discussing with several companies the conclusion is that most mid – large companies would benefit from adding more focus on indirect material spend. A full time resource for indirect material spend would be a good investment, at least for the first year when many quick wins can be negotiated. But after a year or two the saving potential could be less.

Having one or two full time resources focusing on indirect material also requires an extremely broad skillset for those employees. You need to be able to have market- and industry knowledge about several commodities, e.g: IT, telephony, insurances, cars fleets, marketing, transportations, office suppliers, consultants, travel etc. Resources with this large skillset is very hard to find.

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Market Analysis

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One important activity in the strategic sourcing work is the market analysis. The market analysis helps you to select the right sourcing strategy and tactics for your commodity or area. It’s also important to understand the different cost drivers, how they are changing with the market, if there are any new suppliers or suppliers closing or merging and if there are any changes to the capacity situation in the market. One additional important aspect is information from internal stakeholder.
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Legal Agreements

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- How do you legally secure the confidential information you share with your suppliers?
- How do you legally bind the service you need from your suppliers?

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The Puzzle

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- What are the main areas to focus on in order to improve your purchasing abilities?
- What activities should you prioritize and how should you do it?
- What is the strategy to become “best in class in purchasing”?

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Purchasing and Approval

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Basic company purchasing and approval process

- How well do you follow up from which suppliers you buy goods and services?
- How does your organization know from which supplier to buy goods and services?
- How do you secure that your organization only buy goods and services up to the amounts you have approved?

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Active Management

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- How well does your company’s management support your purchasing activities?
- How important is the purchasing function considered in your company?
- Do you have a purchasing director or similar as a member of your company’s leadership team?
- What is your company’s perception of the purchasing organization? Strategic function that adds value to the business or just a call off function for placing orders and driving material?

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Change Communication

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The puzzle to become best in class in purchasing – Roles and responsibilities and change communication plan

- How well are your purchasing strategies aligned with your internal stakeholders?
- How do you secure what to deliver and what to get from your internal colleagues?
- How well does your organization follow negotiated contracts?

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Commodity Structure

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- How can you increase time to market with efficient supplier cooperation?
- How can you maximize your buying power towards your suppliers?

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Control of Spend

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- How do you use your knowledge of how much money you spend on different suppliers?
- How much of your total spend do you have under management?
- How do you develop your purchasing strategies based on your spend?

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