Streamlined Solutions: A roadmap to negotiating a strategic sole-source agreement

At times, a company may have such specific needs that only one supplier can provide the product or service required. In procurement, we focus on diversifying suppliers to mitigate risks, but in these cases, the usual approach of fostering competition to ensure the best value is not feasible.¹

Sole-source negotiations do not need to be daunting. By leveraging all the expertise at your disposal, you can bring a favorable deal to the table that is efficient, economical, and fair. The key is assembling the right team, conducting category research, and defining your value proposition prior to engaging with the supplier. Be bold and innovative in your approach, and don’t be afraid to introduce something new. Creativity and openness to fresh ideas are key to forming a successful partnership.

Build Your Team

Adopting a partnership mentality will help you become a trusted business advisor and foster more meaningful relationships. Developing a strong cross-functional team that includes all decision-makers and stakeholders is critical to the success of any negotiation. Here are some tips to get your team on the same page:

1. Engage your stakeholders early. Early engagement will minimize roadblocks by obtaining buy-in during the planning phase.
2. Show genuine interest in your stakeholders. Asking questions about their area of business will foster cooperation and a smooth negotiation process.
3. Demonstrate your commitment to your stakeholders. Visiting your stakeholders’ job site or touring their area of the plant will help gain a solid understanding of their challenges and top priorities. It also provides an opportunity to build an understanding of their business requirements, and why they are so interested or committed to the supplier. Include a review of the current specification or scope of work for the product or service.

Conduct Research

Before diving into negotiations, thorough research is essential to fully understand the sole-source situation. This step will require strong involvement and participation from your stakeholder team. The following is a list of questions to help get you started:

1. Has the specification or scope of work changed since the last time this was sourced?
2. When was the last time we researched this need? Have any new suppliers entered the market?
3. Is this something we can insource?
4. Do we have any other current suppliers that produce or provide something similar that we can develop?
5. Is there a similar product or service we can use to meet our needs?

While conducting your research, conversations may lead to more questions and opportunities. The key question to answer during this phase is, “Is this truly a sole-source situation?” If you can identify that answer is actually no, and alternatives exist, then now you’ve opened the door to additional conversations with the team to determine the best sourcing strategy.

Develop Your Value Proposition

If through research and engaging your stakeholder team, you’ve exhausted all options for alternatives and confirmed that sole-source is the only option, it is time to start building your value proposition.² When there is only one option for sourcing a product or service, it is easy to fall into the mindset of “we need them more than they need us,” but that is not the case. You are still a customer, and all businesses need customers. Here are some questions to consider, to create a negotiation strategy:

1. What growth are you expecting? Prepare a view of your current spending with the supplier and include a future projection based on expected growth for your company.
2. What does your company provide, and why should this supplier be a part of it? Share your company’s vision and build a story around why the supplier should be a part of it. For example: “We provide the utilities necessary for our customers to enjoy the quality of life they deserve. You get to be a part of enhancing people’s lives.”
3. How can you make it easier to do business with you? Going back to the partner mindset, think about how you can adopt policies and procedures to make it easier to do business with your company. Something as simple as different payment terms could help your supplier manage their cashflow better and in turn lower their price to you.
4. Are your terms one-sided? Be open to compromise. We all have risks to manage. Are your requirements meant to protect your company alone without any consideration for the supplier? Will the terms cost the supplier so much that they have no wiggle room to offer better prices?
5. What do you need? Be well prepared to ask for what you want and share what success looks like for this negotiation. Also, having your BATNA (Best Alternative to a Negotiated Agreement) prepared will help keep the conversation flowing and direct you to your end point.
6. Are your stakeholders aware? Before you present to the supplier, ensure all decision-makers have heard your presentation and agree. Understand what their limits are and where they are flexible. If your team is part of the negotiation meeting, have a plan in place for who will present and how questions will be managed.

Being prepared with compelling reasons why your supplier should want to do business with you will help set the stage for a meaningful conversation. Also, knowing your limits will help you be prepared to know when you’ve been successful.

Present Your Case

Now that you have prepared your case, it is time to meet with your supplier. Go in with the confidence that you are prepared, flexible, and know what you need. Express gratitude to the supplier, acknowledging their value and the value of the partnership. Once you’ve presented your desired outcome and value proposition, listen. Allow time for the supplier to absorb and respond. This should be a conversation, not an argument, to foster a collaborative environment.

Sole-source negotiations are a common challenge that many procurement professionals face during their careers. These situations often bring a sense of urgency and doubt, with thoughts like, “We need this supplier,” and “Getting a good deal seems unlikely.” But in today’s environment, this mindset can be overcome. By designing a thorough negotiation plan that includes a value proposition and a strategic roadmap, you can secure a win-win outcome for all parties involved.

Sources:

¹ Sole Sourcing and Single Sourcing: What’s the Difference

² How do you negotiate with single/sole source suppliers?

³ 5 steps to mitigate the risks of sole-source suppliers