Insights into leading purchasing strategies for the automotive industry
The situation of buyers in the automotive industry has changed dramatically in recent years. The global recalls are just the tip of the iceberg: all problems relate to the fact that for decades, prices have been more important than quality. The leading automotive manufacturers have now recognized that they must counteract this. A strategic reorientation of purchasing that is based on long-term corporate goals will significantly contribute to this kind of 180-degree turn. In her guest post, author Tanja Dammann-Götsch demonstrates a way out of this devastating race to the bottom on pricing. The focus of her remarks is on preparing for and engaging in negotiations, as well as on her main idea that including suppliers as partners in negotiations will help in achieving long-term corporate goals in the future. Below she explains the cornerstone of her win-win strategy to benefit both sides in negotiations.
How buyers can reposition themselves
Regardless of whether a buyer is about to negotiate with a supplier or have an important talk with an internal sales manager, the crucial factor is for buyers to be completely aware that their actions help shape the company. Anyone with an exclusive focus on prices will not be able to achieve optimal results; the procurement field has become much too complex for that. A purchasing professional must master the entire process in order for buyers and their negotiating partners to achieve long-term business goals together. Strategic negotiation preparation plays a central role here, since without preparation, it is difficult to direct a negotiation effectively.
Avoiding hot buttons
Smart buyers never burn bridges, especially in the automotive industry. It’s why negotiating as partners is such a must: A purchasing professional has to guard against pressing people’s hot buttons, or provoking or making a fool of the other party in the negotiation, because no one forgets or forgives a loss of face. This should be obvious, but it is not: Anyone who is focused only on the numbers can step on someone else’s toes much more quickly than they mean to. It is well known that only 20% of information is communicated at the factual level, whereas 80% comes through on the mostly unconscious emotional level. When preparing for a negotiation, buyers should practice sizing up their counterparts quickly, along with their basic (unconscious) motives. It also helps to be aware of one’s own motivation for action, in order to avoid misunderstandings and to communicate better with one’s partners in the negotiation. For example, a professional purchaser has the experience to know that someone who prizes prestige must walk out of a negotiation believing they have won; playing hardball would be the wrong strategy in such a case.
More than just a single monetary target
What I am about to say will not please everyone, but the best price is a relative thing: It is invaluable to have more than just one number in your head ahead of a negotiation. Indeed, you should have a variety of them: the opening offer on the one hand – that is, the price that you estimate your negotiation partner will begin with – and on the other your minimum target, your realistic and maximum targets, and your maximum-plus-extra target. Last should be the price you don’t dare dream of getting. Give each target a number, and write these down. Have “your” numbers in your head when you go into the negotiation.
Don’t underestimate informational targets
Information is priceless. What would you like to know? What will you allow your counterpart to know about you, and what must they never find out? Master your replies in detail ahead of time. Also keep in mind that there needs to be a balance of give and take. Giving away too much about yourself or your company without demanding information in return is giving up the upper hand.
The negotiation process from A to Z
However different the items on the agenda may be, and however much the budget volumes may vary, certain rules always apply in the negotiation process, and buyers must follow them. You need to familiarize yourself with all the stages of the negotiation process and learn to dominate them. No step should be left out. Experience shows that the buyer who messes up the opening by disregarding the small-talk phase at the beginning of a negotiation and going straight to the facts, whether out of nervousness or a lack of time, will not achieve an ideal result.
Working out alternatives to price
One of the most important aspects in preparing for a negotiation is to think about alternatives to price. Purchasing professionals must be ready with at least five alternatives to their desired price, whether these are free samples, special services, better payment conditions or the provision of a resident engineer. The importance of this is obvious: You give yourself some breathing room in the negotiation and pass the ball back to your negotiation partner. This is often how structural improvements emerge that have a long-term positive effect on production, and therefore on the image of the company as well.
Judging your own bargaining power correctly
Some buyers underestimate their bargaining power, especially at internal meetings with the sales department. This not only weakens the buyer, it also limits the possibility for the two departments to work together toward better quality. At least in the automotive industry, however, it is much more likely that purchasing professionals will overestimate the power of their own position or that of the company they represent. A healthy dose of realism and specific knowledge of the facts are helpful here. In addition, buyers should remember that the balance of power in a negotiation can also tilt, and they should be equally prepared for this to happen.
Expecting the unexpected
How should we react if our negotiation partner surprises us? This happened a few years ago at one of the largest automotive manufacturers: Picture a yearlong negotiating process with one of the most important suppliers, where all of the purchasing managers are present, and imagine themselves to be in a good bargaining position. The purchasing volume at stake is several million euros. The door opens. The director of the supply company enters the room, throws a thick package of invoices on the table and says: “We can start the negotiations once these bills are paid.” No one was prepared for such a situation. These days, part of the “purchasing skillset” is for negotiators to be prepared for surprises, so that they are able to defuse these immediately. Instead of reacting rashly and even making concessions that you may regret afterwards, you can interrupt or break off the negotiations. Anything is better than making false commitments you cannot keep and that will only make you lose face later on.
Practicing on real cases
All theory is gray. You can only gain certainty in negotiations through concrete experience. You can prepare yourself by going through the whole dialogue, checking and improving until all the pieces fit together. An important tool here is the RoadMINDMap©, developed by the Purchasing Partner Academy, which includes the complete strategy for a real case. The RoadMINDMap© has all of the relevant aspects of negotiation preparation listed here and more. Plus, it fits in your pocket.
GPS for your negotiations – the RoadMINDMap©
As you work through the RoadMINDMap©, developed for a real-world practice case, you will begin to internalize it, and your recall during negotiations will improve. Purchasing professionals take their internalized RoadMINDMap© with them into negotiations as a mental support. However, it does not belong at the negotiating table itself. The consequences would be ruinous: Who wants to have all their cards on the table? The route planner that navigates the buyer through the negotiation towards the strategic goal is a mental one.
Recognized training methods inspired by the Harvard program of expert negotiation were used in the creation of this internal road map, which pursues a win-win strategy that strives to achieve the greatest utility for both sides. This kind of result brings advantages to all partners involved in the negotiation.