3 ways to use procurement negotiation to combat inflation (2023)

3 ways to use procurement negotiation to combat inflation (1)

In the realm of procurement, it is crucial for professionals to strategically generate substantial value during deal negotiations, especially when dealing with supplier agreements that encompass more than mere pricing considerations. (Photo: Getty Images)

Latest News

The implementation of e-logistics in supply chain operations

3 ways to use procurement negotiation to combat inflation

Schneider Electric tops Gartner Global Supply Chain Top 25 for first time

How AI can create new opportunities for the worldwide air cargo logistics industry

Missing your target? Successful implementations begin at procurement

More News

Latest Resource

Invest in Collaborative Planning to Mitigate Variability

Netstock has partnered with Lora Cecere, Founder and CEO of Supply Chain Insights, to produce a white paper on collaborative technologies that improve organizational alignment and drive resiliency in the face of unprecedented variability.

All Resources

By Mike Slomke · May 30, 2023

Historically high inflation is creeping into all aspects of business operations—from rising supplier and raw material costs and shipping expenses to higher wages and indirect procurement costs. One recent example: In its 2022 Annual Report, a major global auto manufacturer reported that increased industrial costs amounted to an impact of $9.6 billion.

If procurement teams have learned anything over the last three years, it’s that the status quo methods of building and closing deals no longer work in 2023. Increasing prices and passing costs along to customers isn’t a sustainable or comprehensive solution to address inflationary pressures.

So how can procurement teams combat inflation? With a world-class negotiation process deployed to all procurement negotiators and advanced negotiation skills training.

How to fight back against inflation

Companies are entering into inflation negotiations whether they know it or not. The right negotiation processes and skills are critical to an effective procurement strategy to combat these inflationary costs.

Companies can often easily see when their direct procurement costs for raw materials rise, but there are many areas across an organization’s spending profile that lack visibility. For example, on the indirect procurement side, spend detail can be fragmented and much harder to obtain which requires a robust strategy to aggregate.

World-class negotiation processes and advanced negotiation skills are the best tools for fighting inflation. Even during inflationary times, most spending can be negotiated with a robust negotiation process in place and a team of highly trained negotiators.

Here are three ways companies should use procurement negotiation to beat inflation and safeguard their bottom line:

#1: Create value in procurement with negotiation

The goal of your procurement processes must be to create value for the business and find efficiencies. This value creation is a huge competitive factor that has become an increasingly relevant purchasing priority.

This goal is particularly acute when facing inflationary pressures impacting the bottom line of the business. The thing to remember is: All value delivered in procurement is negotiated—or it’s not.

When value isn’t negotiated, it’s left to chance. In a world of many seemingly objective elements—material price, transportation cost, lead time, product and service quality, etc.—it’s easy to forget that value can be a matter of perception, and that it is negotiable.

Procurement professionals must intentionally create value that carries real weight in the course of a deal, particularly in a supplier agreement that covers more than just price. If you don’t have a robust process in place, you are unable to creatively build a supplier agreement that addresses rising costs or find value that benefits both you and your supplier.

The more areas in addition to price where you align expectations between the customer and supplier, the greater chance you have of having those expectations met.

Maybe one particular element of product cost isn’t negotiable, but can you negotiate other areas of value? Here are a few examples of value creation to consider:

(Video) How to Effectively Ask for a Pay Raise - Prof. Jordan Peterson

● Does your supplier have additional services they can provide more cost-effectively?

● Does your supplier have lower-cost alternative materials or services?

● Can your supplier open a stockroom on your manufacturing facility floor?

● Can your supplier guarantee that they will have a certain number of days of inventory in stock?

● How much inventory is in your supplier’s pipeline and where will it be?

● How can materials be more efficiently packaged, shipped, or returned?

● What early notifications will you receive when your supplier runs into their own supply chain issues?

● In times of inflation, can you position your growth and future demand and tie it to the growth and demand of your supplier in the agreement?

Strong supplier relationships return the most value. A good supplier relationship is built not on what happens when things are going well, but on what happens when things go wrong. Namely, can you work through issues productively?

A robust approach to supplier agreements that builds value for both you and your supplier is critical to building a strong relational foundation and shared value. Shared value and positive relationships will generate better results in supplier performance than negative relationships.

So how do you create value in negotiation? With a well-defined, well-deployed negotiation process and well-trained negotiation team.

A world-class negotiation process should include principles like:

● Positioning your case advantageously.

● Setting high aspirations before you start negotiations.

● Managing information skillfully or listening to your counterpart’s needs instead of sharing too much information too soon.

(Video) Salary Negotiation: 6 Tips on How to Negotiate a Higher Salary

● Knowing the full strength of your power.

● Satisfy needs over wants. (Learn what your counterpart needs to create a positive agreement.)

● Concede according to plan. (Think of concessions as a tool.)

#2: Standardize negotiation processes, language, and vocabulary across your organization

After defining your negotiation process, a critical component of creating, deploying, reinforcing, and measuring your negotiation process is a common negotiation language and vocabulary. More than ever, success relies on procurement’s ability to communicate clearly and negotiate capably.

Many organizations fail to align all procurement teams on the most efficient processes for procurement negotiations. Failure to align procurement teams dispersed across different divisions, sites, or regions is a critical misstep that creates inefficiency and can hinder effective negotiations.

Consider a large, global enterprise where people come together to negotiate deals that cover multiple regions, sites, and parts.

The first step is for the internal teams to align on a negotiation strategy and identify what outcome each team needs. If a team has to first figure out how to communicate what it needs, it wastes time. If each team is trained on the same negotiation process and language, they all walk into the room on the same wavelength and can start planning a strategy immediately. A common language speeds up the planning process, reduces inefficiency, and eliminates error.

A common negotiation language and vocabulary enable procurement teams to effectively build a negotiation value proposition, set goals, manage information, understand the bargaining position, and close advantageous deals.

Think about it. No automotive company would ever hire a factory floor assembler and tell them to bring their own tools and do their best. Why do we do essentially the same thing to procurement teams and expect them to excel?

Each factory worker has safety protocols, detailed assembly procedures, calibrated tools, and standardized processes. The same approach should apply to your procurement team.

#3: Don’t cut your cost cutters during challenging economies—invest in them

It’s sometimes tempting for companies to cut investments in training or even reduce personnel during tough economic times. This is a critical error that negatively impacts the bottom line, particularly during an uncertain economy.

During inflationary periods, sales teams tend to smell blood in the water. When the market is on their side, sales negotiators aggressively pursue price increases. Procurement negotiators are the best stopgap to this type of inflation.

Your procurement team’s negotiation training is a critical step in deploying a robust and standardized negotiation process across the organization. Without a world-class negotiation process and advanced negotiation skills, you leave value and dollars on the table.

(Video) Webinar: Inflation Buster – Tactics to Mitigate Cost Increase Requests

Negotiation is a critical business process that requires the proper tools for success. Procurement teams need to be supported and invested in, not cut, during challenging times. After all, they are your leading cost cutters and inflation fighters.

If your workforce experiences turnover, your new hires must be trained on your negotiation processes and develop advanced negotiation skills. If you have a longstanding team, you need new ways to identify continuous improvement and disseminate updated processes.

Investing in negotiation training ensures that procurement teams negotiate with efficiency and effectiveness, stay highly engaged and advance their skills and career development. Ultimately, supply chain leaders must view training as a key component to fighting inflation, building strong supplier agreements, and delivering improved results to the business.

Combatting unprecedented inflation

Unprecedented inflation combined with service-level degradation and ongoing supply chain disruptions means procurement negotiation is more important than ever to business profitability. Defining a negotiation process, standardizing negotiation language and vocabulary, and training procurement teams across the enterprise on each are critical components to fighting inflation.

Once your procurement team has a set negotiation process and negotiation training plan, the job isn’t over. It’s critical to have a plan for how your new process is deployed, reinforced, and measured with a focus on continuous improvement.

About the author:

Mike Slomke has over 30 years of procurement leadership experience with three Fortune 100 companies, including 17 years in chief procurement officer roles. He served six years as a board of trustees member for CAPS Research, a non-profit research center at the W. P. Carey School of Business at Arizona State University, established in 1986 in partnership with the Institute for Supply Management. Mike currently serves as a leader at RED BEAR Negotiation, helping forward-thinking companies around the world, across every industry, from the Fortune 500 to high-growth start-ups receive impactful procurement-focused negotiation training that produces measurable business results. Learn more at www.redbearnegotiation.com.

(Video) The Harvard Principles of Negotiation

3 ways to use procurement negotiation to combat inflation (3)

May 30, 2023

3 ways to use procurement negotiation to combat inflation (4)

Subscribe to Supply Chain Management Review Magazine!

Subscribe today. Don't Miss Out!
Get in-depth coverage from industry experts with proven techniques for cutting supply chain costs and case studies in supply chain best practices.
Start Your Subscription Today!

Article Topics

Inflation &middotManagement &middotProcurement &middotSupply Chain &middot

All Topics
(Video) How To Ask For A Raise - Step 1: Do Your Homework | Megyn Kelly TODAY


How can procurement help with inflation? ›

To help you navigate the storm, here are our five ways that procurement can help combat inflation:
  1. Understand the size of the issue. ...
  2. Build strong supplier relationships. ...
  3. Tackle demand management. ...
  4. Take control of total cost management. ...
  5. Drive specification management.

How do you mitigate inflation in procurement? ›

While keeping costs the same as they were before prices went up is unrealistic, there are strategies procurement can use to mitigate the effects of inflation.
  1. 1) Improve Visibility. ...
  2. 2) Look at Your Suppliers. ...
  3. 3) Review Contracts. ...
  4. 4) Negotiate with Suppliers. ...
  5. 5) Consider Hedging. ...
  6. 6) Collaborate on Creative Solutions.

What are the methods of procurement negotiation? ›

Six positive negotiation tactics in procurement
  • A focus on the human touch. ...
  • Making compromises together. ...
  • The role of mediator. ...
  • The technician's deterrent. ...
  • An iron fist in a velvet glove. ...
  • Drawing the other party in like a storyteller.
Jun 17, 2021

How do you negotiate price with procurement? ›

Best practices upstream of the discussion in procurement negotiations
  1. Define your “Best Alternative” ...
  2. Agree on the negotiation process. ...
  3. Build trust. ...
  4. Practise active listening. ...
  5. Ask the right questions. ...
  6. Move forward step by step. ...
  7. Beware of “anchoring bias” ...
  8. Submit multiple offers simultaneously.
Nov 18, 2021

How can procurement save money? ›

Procurement Cost Savings: 20 Actionable Strategies
  1. Request Supplier Discounts. ...
  2. Review Contracts. ...
  3. Consolidate Vendors and Deliveries. ...
  4. Review Purchasing Needs. ...
  5. Prevent Maverick Spend. ...
  6. Check Inventory. ...
  7. Evaluate Order Quality. ...
  8. Improve Vendor Relationship Management.
Aug 11, 2021

How can procurement help? ›

Procurement identifies key areas of spend, qualifies suppliers in line with business goals, builds crucial relationships, and handles strategic negotiations.

What are 3 ways to fight inflation? ›

6 Ways to Fight Inflation and Save Money Now
  • Cut costs at the grocery store.
  • Save money on transportation.
  • Plan ahead for cheaper vacations.
  • Check your budget.
  • Pay down credit card debt.
  • Earn money on your savings.
Apr 6, 2023

What are two ways to deal with inflation? ›

How to budget for inflation
  • Be mindful of your spending. It's important to be mindful of your spending, especially in today's economy. ...
  • Have an emergency fund. ...
  • Invest in inflation-proof assets. ...
  • Save up for big-ticket items in advance.

How do you mitigate high inflation risk? ›

Alter/re-engineer your offerings and value proposition—Other options could include reducing the size or volume of a product, changing the design or formulation of your product using less expensive components, or streamlining the service you are offering, but keeping the price the same.

What are the 3 main stages in a negotiation? ›

The negotiation process can be organized into three phases: planning, negotia- tion, and postnegotiation.

What are the three commonly used procurement methods? ›

There are three main types of procurement activities: direct procurement, indirect procurement, and services procurement.

What are the 3 steps to planning for negotiation? ›

4 Steps to Planning a Successful Negotiation
  • Step 1: Identify the Objective. ...
  • Step 2: Identify the situation. ...
  • Step 3: Generate alternative solutions. ...
  • Step 4: Reach an agreement.
Feb 6, 2023

What are the 7 stages of negotiation in procurement? ›

The seven stages of procurement negotiation and why they matter
  • Preparation.
  • Opening.
  • Testing.
  • Proposing.
  • Bargaining.
  • Agreement.
  • Closure.
Dec 1, 2022

What are the 7 steps of the negotiation process? ›

Seven Steps To Negotiating Successfully
  • Gather Background Information: ...
  • Assess your arsenal of negotiation tactics and strategies: ...
  • Create Your Negotiation Plan: ...
  • Engage in the Negotiation Process: ...
  • Closing the Negotiation: ...
  • Conduct a Postmortem: ...
  • Create Negotiation Archive:

What are the 4 stages of the negotiation process? ›

Shell describes the process in four stages: Preparation, Exchanging Information, Bargaining, and Closing and Commitment.

What is the best procurement strategy? ›

The most common procurement strategy focused on increasing profits through recognizing saving opportunities and decreasing the total cost of ownership (TCO). Cost savings constitute an important strategic part of a good procurement strategy on a tight budget.

What are the 3 factors that impacts the process of procurement? ›

3 factors affecting procurement planning
  • Market Analysis. Before devising a procurement plan, it is vital for the buyer to have a strong understanding of the market dynamics of the industry they are looking to procure work from. ...
  • Spend Analysis. ...
  • Needs Analysis.

What are the five procurement methods? ›

The five different procurement methods in construction are general contracting, design and build, construction management, joint venture, and private financing. Each method has its advantages and disadvantages and is best suited for a particular type of project.

What is most important in procurement? ›

One of the most important procurement department functions is to purchase goods, services or works from external sources. It plays a vital part in the company's overall business strategy as it requires strategic planning to acquire these things at the best possible cost.

What are the most important things in procurement? ›

The six fundamentals of procurement
  • Identify customer need. Identifying stakeholder or customer need, and separating it from what the customer wants, is crucial, said Sparkes. ...
  • Look outside your market. ...
  • Prioritise relationships. ...
  • Collect spend data. ...
  • Communicate what you are doing. ...
  • Know your negotiating position.
Apr 24, 2017

What are the 4 most important elements of negotiation? ›

There are four key elements that describe a personal negotiation approach: Creating value, claiming value, empathizing with others, and asserting yourself.

What are the 4 principles of negotiation? ›

In this seminal text, Ury and Fisher present four principles for effective negotiation, including: separating people from the problem, focusing on interests rather than positions, generating a variety of options before settling on an agreement, and insisting that the agreement be based on objective criteria.

What is the 3 second rule in negotiation? ›

According to a study published in the Journal of Applied Psychology, sitting silently for at least three seconds during a difficult moment in a negotiation, confrontation, or even conversation makes both people more deliberative -- and leads to better outcomes.

What are 3 examples of procurement activities? ›

It includes a range of activities involved in obtaining goods and services, including sourcing, negotiating terms, making purchases, tracking when supplies are received and maintaining records.

What are the three 3 stages implemented in e procurement? ›

The software and information systems that e-procurement uses enable the purchases to become paperless for all or part of the Procure-to-Pay process (P2P), which has three main phases: Selection of goods; Sending the order; Invoicing and payment.

What are the 4 factors of negotiation effectiveness? ›

Four factors influence how effectively individuals negotiate: personality, mood/emotions, culture, and gender.

What are the 5 steps in negotiation process? ›

Negotiation consists of five phases that include investigation, determining your BATNA, presentation, bargaining, and closure.

What are the 6 stages of negotiation? ›

The Six Stage Negotiation Process
  • Stage 1 – Statement of Intent. ...
  • Stage 2 – Preparation for Negotiations. ...
  • Stage 3 – Negotiation of a Framework Agreement. ...
  • Stage 4 – Negotiation of an Agreement in Principle (AIP) ...
  • Stage 5 – Negotiation to Finalize a Treaty. ...
  • Stage 6 – Implementation of a Treaty.

What are the 8 stages of negotiation? ›

The Eight-Stage Negotiation Process
  • Prepare: Know what you want. ...
  • Open: Put your case. ...
  • Argue: Support your case. ...
  • Explore: Seek understanding and possibility.
  • Signal: Indicate your readiness to work together.
  • Package: Assemble potential trades.
  • Close: Reach final agreement.
  • Sustain: Make sure what is agreed happens.

What are the benefits of procurement to the economy? ›

More efficient supply chain or supply network reduce costs, shorten lead times and reduce tied-up capital, improve quality and provide faster product or service reforms.

How can procurement contribute to increasing profits? ›

Procurement thus plays a strategic role within a company. It is responsible for providing the materials needed for production, while at the same time focusing on cutting costs and improving stock management, which makes it a key player in managing the company's profitability.

How does purchasing power affect inflation? ›

Inflation reduces a currency's purchasing power and what that currency can buy. Loss of purchasing power has the effect of an increase in prices. To measure purchasing power in the traditional economic sense, you could compare the price of a good or service against a price index such as the Consumer Price Index (CPI).

How can procurement improve performance? ›

There are several advantages to having a centralized procurement center that isn't geographically dispersed. Among these advantages are enhanced volume purchasing, advanced use of technology through automation, improved organization of the process, and improved buyer-supplier relationships.

What is the most important part of procurement? ›

One of the most important procurement department functions is to purchase goods, services or works from external sources. It plays a vital part in the company's overall business strategy as it requires strategic planning to acquire these things at the best possible cost.

What does procurement mean in the economy? ›

What is Procurement? To answer the question of what is procurement, we can simply understand it as a process of obtainment of either goods or even services. In financial aspects, procurement is generally associated with the act of a company that's purchasing or soliciting goods and services on a large scale.

What is procurement efficiency? ›

Procurement efficiency is a business term that refers to the ability of an organization to purchase goods and services in a cost-effective manner. It is a measure of how well an organization is able to acquire the goods and services it needs to run its operations, while minimizing the costs associated with the process.

What are 3 possible effects of inflation? ›

For all the positives associated with inflation, there are some impactful negatives to consider as well.
  • Disproportionately Impacts Low-Income Households. ...
  • Raises Cost Of Living. ...
  • Raises Interest Rates. ...
  • Hurts The Growth Of Stocks And Bonds.
Feb 27, 2023

What are the 2 correct procurement strategies? ›

Types of strategies for procurement
  • Cost reduction. This is a common strategy that businesses use to save money. ...
  • Green purchasing. ...
  • Risk management. ...
  • Global sourcing. ...
  • Total quality management. ...
  • Supplier management and optimization. ...
  • Determine your needs. ...
  • Assess your current situation.
Sep 30, 2022


1. How To Beat Inflation? Ways To Overcome Inflation
(Finance Factory)
2. What, Why, How, And Who Is Inflation? - SOME MORE NEWS
(Some More News)
3. The Best Trick to Negotiate a Salary Increase for Your Promotion
(Andrew LaCivita)
4. How To Negotiate With An Impossible Seller/Buyer - This Is A Problem Solver !
(Jamil Damji)
6. Banks And Inflation Stealing Your Money - 7 Ways To Protect Your Money
(Ric Bender )


Top Articles
Latest Posts
Article information

Author: Eusebia Nader

Last Updated: 02/09/2023

Views: 6287

Rating: 5 / 5 (80 voted)

Reviews: 95% of readers found this page helpful

Author information

Name: Eusebia Nader

Birthday: 1994-11-11

Address: Apt. 721 977 Ebert Meadows, Jereville, GA 73618-6603

Phone: +2316203969400

Job: International Farming Consultant

Hobby: Reading, Photography, Shooting, Singing, Magic, Kayaking, Mushroom hunting

Introduction: My name is Eusebia Nader, I am a encouraging, brainy, lively, nice, famous, healthy, clever person who loves writing and wants to share my knowledge and understanding with you.