– By Mark Young, President of Rational Games –
A client recently emailed me to ask for some advice on negotiating with single-source suppliers. A purchaser in the cement industry, he is often faced with the difficulty of having to procure essential raw materials that are only available from a very few or even one supplier, sometimes even globally. If BATNAs are a major source of power, he certainly has none here.
This is a real negotiation challenge, and I am afraid I have no easy answer, certainly not one that cuts across all situations. But allow me three thoughts:
1. Price often needs to be unpacked as a negotiation issue.
Rather than haggling over a binary “take it or leave it” price demand, it is worth exploring what is underneath. What currency is it in? When is it paid? Is it fixed or variable? Any tie to future revenues? Explorations like these can sometimes yield hidden levers under daunting dealbreakers.
2. Would even more creative thinking allow us to help the supplier create additional value upstream?
What do we know about his suppliers? Who else is in the overall value chain? Can we ourselves vertically integrate? Why is he demanding the price increase and how can we help obviate the need for it? Making the pie bigger does not need to happen at the bilateral table.
3. Always, always find a way to create your BATNA, no matter how hopeless it seems.
Our Harvard friends have done some interesting work of late around WATNAs (Worst Alternative to a Negotiated Agreement). What is the most dire consequence of not accepting this new price, and would that really be so bad? In this vein, the BATNA we often overlook is the “Do Nothing” BATNA. What would happen if we simply shelved this deal and this supplier and looked for other ways to meet our overall negotiation objectives?
These are not panaceas. But perhaps rays of hope. Comments welcome!