Should you even negotiate ?

Should you even negotiate? Negotiation is only the tip of the iceberg – and you need to refocus if you want to succeed!

If you were asked to describe what the “guy from procurement” actually does, I am sure you will at least use the word “negotiation” or the verb “to negotiate” once.

Negotiating terms and prices with vendors is often viewed as “what the procurement department does,” and, yes, it is. But negotiating is not a big part of what “the guy from procurement” does. Nor—and here feathers will be ruffled—is it, by far, the most value-adding part of the job.

Let’s get it out of the way: Procurement’s task is to optimize the total cost of cooperation with 3rd parties, not just get you a better price.

Procurement departments have for the last decade been communicating that they provide value to the business—not just price reduction. The reason for this is to change the perception of procurement being only of cost-cutters/price negotiators organized in a support function, and show procurement can be SO much more. I have been driving the same agenda myself, both as head of procurement and later as procurement consultant; and, yes, Procurement is more than cost price reduction.

But, regardless of what you call it, in almost every situation the value procurement is adding will be assigned a monetary value hitting the bottom line. Value, yes, but expressed as an amount.

The Hidden Iceberg - Where Real Value Lives

Negotiations will have a place in the procurement process, but there are several more value-adding levers that you use much earlier in the process—levers that achieve much more for your company.

Specification Management & Requirements Engineering – Properly managing what you buy and considering alternatives, e.g., using a generic component, an off-the-shelf solution, or buying a product that is more expensive but results in quicker installation, etc. If this is the first time you source this product, you can often achieve 15% savings just by looking at the specifications.

Strategic Sourcing & Market Intelligence – Ensure your category managers have transaction and supplier level data, e.g., consumption, plans, product breakdown, vendor insights, etc., to work from. This allows them to act on changes in own consumption as well as changes in market conditions.

Contract Structure & Risk Allocation -  Be careful how you approach contracting. A contract loading all risk and no upside on the vendor most often results in higher costs. Invest time and resources in proper risk analysis for you to build solid mitigation plans. With those in hand, you can often accept a high(er) level of risk and thus reduce the costs.

Category Strategy & Total Cost of Ownership – Begin addressing the total cost of ownership of a product rather than the price—it will reduce your costs. Think outside price alone, and begin viewing your company end to end – the results will come. As an example, a few years ago, I sourced a product that on paper had a 3x price increase compared to the incumbent. However, the product lasted 6-9 times longer during the production process and saved a very large amount in labor. It took me quite some discussions with finance and procurement leadership to accept this decision (they were incentivized on the price, not cost). Happy to share that common sense prevailed, and we ended up with the more expensive product.

Negotiation – Use data, should-cost models, and structured preparation (a lot of preparation) to make the most of the final negotiation. The key is to move from “You gave me a bad price, now give me a good price” (BTW; this is a real quote: Danish TV followed the purchase manager from a large retail chain visiting suppliers on a trade fair) to fact-based negotiation where you approach the task as a team representing all the relevant disciplines in the company who are able to explore opportunities with the vendor and finally to make fact-based decisions.The

Procurement Maturity Question

Take a look at your procurement function: Are you still celebrating negotiation wins, or have you actually built the capabilities to capture the 90% of value that sits upstream of the negotiation table?

Simple test: Think about the last three procurement wins/success stories in your company. What were they?

"We negotiated 5% off the price"

Or were they:

"We worked with engineering during project scoping and switched to a standard component - cut total project cost by 18%"

If it's the first one, you are stuck at the tip of the iceberg – and missing most of the value.

What is real procurement maturity? That's when your category managers get invited to project kick-offs, not just when someone needs a PO raised. It's when engineers actually listen when you challenge their specifications instead of rolling their eyes. It's when finance sees procurement as a partner in cost management, not the department that slows down approvals.

That is easy to do, right?

Well - yes - and no. Building this takes years, not months. It requires real investment in training, systems, and data capabilities. It normally means hiring different people with different skills – and maybe some unpleasant conversations about colleagues not suited to continue.

There is also a need to change the culture and approach across the company to make room for the type of procurement that delivers sustainable results. It is too difficult to address the other topics if half your leadership team still thinks procurement's job is to "get three quotes and pick the cheapest one."

If you're serious about capturing that 90% of value sitting beneath the waterline—the real value in specifications, category strategy, contract structure, risk management—there's unfortunately no shortcut.

The choice is between either building the capability to work strategically, or the company accepts that procurement is only price negotiations. I have seen both – I have also seen what delivers most over time.

The Competencies That Actually Matter

If Procurement historically has “only” been negotiating prices, what is required to develop?

To me, the real value lies in building a procurement function that supports the strategic goal of the company. This can rarely be done with a singular view on “price.”

So we must be shifting competency development focus from "negotiation skills" to:

• Business understanding (not just knowledge)
• Technical specification writing
• Emotional intelligence
• Supply market analysis
• Contract law understanding
• Data analytics
• Cross-functional collaboration
• Project Management

– and, of course, the ability to conduct negotiations well at the right time.

Let me be blunt here – if your procurement department's training budget is still dominated by "Advanced Negotiation Tactics" courses, you're investing in the wrong capabilities.

I've seen too many procurement professionals who can execute a flawless supplier meeting but can't read a technical drawing, understand a Gantt chart, or challenge an engineer on material specifications. That's backwards.

The competencies that actually move the needle are the ones that let you engage upstream – before the RFQ is sent out.

You need people who can sit in project kick-off meetings and ask intelligent questions about scope. People who understand enough about the technology to know when a specification is gold-plating versus genuine requirement. People who can build finance-friendly business cases that are actually understandable.

By Nicolai Vinge, Partner CostAdvisory, Nicolai Vinge has more than 20 years experience with procurement. He has held a number of leadership positions in large multinational companies in various industries. For the last five years, Nicolai has been supporting companies with improving the bottomline by addressing procurement topics across the value chain -using the described levers successfully.

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