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How to drive a hard bargain

12 August 2010

With almost every aspect of business negotiable, being able to get a great deal is as important to the success of a hospitality operation as a warm welcome for a customer. James Clare explains how to get the best from your suppliers.

At a time when businesses everywhere are trying to maximise profit, negotiation is becoming an increasingly indispensable business skill. Whether you are an account director in a hotel and venues chain, a buyer in a restaurant group or a catering supply account manager, the principles of negotiation are the same.

The good news is that almost every aspect of business is negotiable: unit price, volume, room rates, shelf life, late availability, facilities, service level agreements, lead times, delivery times, distribution, rebate, storage, exclusivity and contract lengths - the list goes on.

So by thinking creatively about the terms involved in a negotiation, you will be able to create more value across all aspects of the company you work for.

TOP 10 NEGOTIATION TIPS

1. Understand the balance of power One of the most important factors in any negotiation: knowledge is power. By carefully questioning the other party, you can find out information about their timings, their intent and pricing, helping you increase your perceived level of power.

2. Plan carefully From undertaking research to defining your strategy, planning is critical to your success. You should spend 90% of your time planning your strategy and its likely permutations, and 10% of your time negotiating the specific contents of a deal. To define your strategy, you will need to decide whether the negotiation will be co-operative or competitive. Your strategy will then influence your approach: do you want to take, share or give value?

3. Set your break-point in advance

Set your break-point in the cold light of day away from the pressure of interaction. Once you have, try to get inside the other party's head to figure out their break-point. Landing as close to their break-point as possible at the end of the deal should be your main objective.

4. Manage expectations Preconditioning can form a vital component of the planning process. This can be done formally using PR to release information, or more informally in a face-to-face meeting, as part of an "off the record" exchange.

5. Get your position on the table first Aim to get your opening position on the negotiating table first. This will make sure the subsequent interaction is anchored around your figures and proposals. Talk about your numbers to get the other party to move towards you.

6. Open extreme, but realistically Your first position should be realistic, but extreme. By moving away from your opening offer, you can give the other party the satisfaction of winning. This helps them become more agreeable. However, this will only work if the negotiation itself is founded on trust: unrealistic positions damage relationships.

7. Exercise self control By carefully listening to every exchange you can glean new information, which if you are lucky could improve your overall bargaining position. It is important to exercise self control. By keeping quiet, asking open questions and listening carefully, you can prompt the other party to talk and reveal potentially valuable information.

8. Make the other party feel like they are winning By exercising humility and restraining your ego, you can swing the power stakes in your favour by making the other party feel like they are winning. Successful negotiation is the art of "letting them have your way".

9. Don't give things away unconditionally While it's important to make the other party feel they are winning, don't be too generous. Instead, only make conditional offers to make sure you get what you want when you do give things away.

10. Get creative Go beyond the normal trading boundaries of negotiation - usually focused on price - to pinpoint other contract variables to trade as concessions. Price is an important negotiating point, but it is not the only one. You should examine other variables such as risk, contract length, volume, promotional investment and technical specification to unearth new areas of value. Don't think "no"; think "how can I help them to help me?"

James Clare is a partner at negotiation specialistThe Gap Partnership

RUNNING CHECKS ON YOUR SUPPLIERS

Before signing a contract with any supplier it's essential to carry out due diligence to check it can fulfil the agreement. You should credit check potential suppliers to ensure they have the cashflow to deliver what you want, when you need it.

This is especially important if you're entering into a long-term contract. For example, if your supplier is the only available supplier of a particular product or service, you need to be sure they aren't at risk of going out of business.

The supplier will probably also run checks on you to ensure you can pay for any goods or services.

It's also a good idea to get references for the supplier from other customers. The supplier should be happy to put you in touch with some of their existing or previous clients. However, they are unlikely to put you in touch with a dissatisfied customer.

Sometimes a manager in a business bids for contracts, then passes the account on. If this is likely to be the case, make sure you're happy with whoever is being assigned to do the work - and that you'll be able to deal with the manager if any problems arise.

Source: Businesslink.gov.uk

TELLTALE SIGNS THAT YOUR PURCHASING FUNCTION IS NOT PERFORMING

No reliable data Your systems cannot tell you clearly and simply how much money is being spent in which category of expenditure, how many suppliers are being used for each category, and how and why each supplier is used. This applies not just to snapshots in monthly reporting, but to trends over time.

No regular review of purchasing Purchasing just happens, month in, month out. There's no regular benchmarking of new or existing suppliers to determine whether or not you are getting fair value.

Too many suppliers in the wrong areas The wrong areas are low value-added purchases - like till roll - which are essential for the business to function, but confer no strategic benefit. Dealing with too many low value suppliers wastes your employees' time and diverts their attention from the important purchasing areas. And you're almost certainly paying too much, because your buying power is dissipated.

Too few suppliers in the right areas The right areas are high value-added purchases, directly linked to the core of your offer to the customer. If you are too dependent on a small number of key suppliers without up-to-date contracts and backup strategies, your business is at risk.

No clear guidelines or policies A sure sign that your purchasing strategy isn't clear is when purchasing decisions are routinely referred upwards, because no clear policies and guidelines are in place.

Source: Buying Support Agency

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