Want Responsible and Resilient Supply Chains? Wise Negotiation is the Key

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Let’s be blunt. Negotiating with large enterprises is not the same as negotiating with small businesses. More specifically, we cannot apply the same risk management standards to a small company that we can to a larger one.

It’s a pickle because we want small businesses to be a part of our supply chain. We want to work with social enterprises and local suppliers. The benefits they bring to the community are invaluable, and our organisation can help them grow into larger, more sustainable organisations. And let’s not discount the considerable pressure from consumers to be more socially responsible. Also, government-owned and run agencies may be mandated to have social benefit suppliers make up a certain portion of their supply chain.

Regulations, however, can only do so much; the results will be pure tokenism if not implemented wisely, and consumers are savvy enough these days to pick up on empty gestures. But acquiring this wisdom is no easy task. When it comes to building lasting and fulfilling relationships with companies that may present more risk, the bulk of the heavy lifting is to be done by the negotiating team. Simply put, negotiators have to be more skilled than ever before to ensure that the rights and obligations of the parties are defined and are equitable.

Risk Management: Societal Reward vs Business Risk

There are risks when dealing with small businesses, especially those that fall under the category of social enterprises. Their workforce is small, they may have governance standards that are immature, and they may not have the same standards of probity and financial transparency. This is not to say they are negligent or sloppy. This is simply the nature of social benefit suppliers. The people who run these businesses aren’t always in it for a profit; they’re doing what they do to benefit a particular demographic of our community. Their priorities are different and they may not be commercially ‘savvy’.

However, there is no denying the good they are doing within society, and we want to be a part of that. We want to promote it and make it sustainable. For some government agencies, it might even be mandated. For instance, the Northern Territory Government stipulates that local suppliers are weighted at 30% in tender evaluation.

The conundrum is clear. If we are determined to have social enterprises and local suppliers make up more of our supply chain, we have to learn how to manage the risk profile associated with businesses like this, while trying to make ourselves more resilient. It’s not an easy task, but it is a key role for negotiators.

How does this affect negotiation?

All negotiations require the parties to reach an agreement about what is ‘fair’ for each party. However, fairness is a matter of opinion, not a matter of fact, and for clients even defining what is ‘value’ for them has become complex. Value could once have been summed up as “getting what you paid for” in terms of quality, service, and cost.

Today, value is likely to be more broadly defined, including a range of social issues, such as:

  • What is the proportion of women or indigenous employees in the workforce?
  • What are the suppliers’ policies on domestic violence?
  • What is their environmental performance?
  • What is their contribution to the local economy?

Let’s journey back to the Northern Territory. If local content weighting must make up 30% of the supply chain, where does that leave other considerations, such as costquality, and service? Obviously, they have to be distributed within the remaining 70%, but in what permutation?

Negotiators are now required to balance these competing demands and that means the ability to make trade-offs between competing priorities. Firstly, they must identify risks when dealing with particular suppliers. Secondly, they must manage those risks, including accepting those risks that cannot safely be transferred to the supplier.

When dealing with social enterprises and small businesses, good negotiators still aim for a ‘win: win’ outcome, but the ‘win’ for the other party may need to be re-thought. It’s not uncommon for businesses that don’t have the commercial ‘nous’ of large enterprises to put forward proposals that may put themselves at risk – without realising it. It could be that they underquote, it could be they don’t have the staff capacity and/or capability to provide governance to the standards that you are used to. Whatever it is, negotiators need to recognise the pitfalls from both points of view and put in place strategies that manage the risks for both parties.

Become a champion negotiator for today’s world

If you are being asked to focus on increasing supply chain resilience and building more socially responsible supply chains, I’m running a Negotiation Workshop that specifically deals with these issues. Over two days, we will explore:

  • ways in which we can engage with social benefit suppliers and small businesses at an acceptable level of risk;
  • the implications of promoting localisation to meet local content targets and improve supply chain resilience;
  • how to negotiate with Indigenous-owned or run businesses in ways that supports mutually acceptable outcomes; and
  • how to persuade suppliers to demonstrate inclusive business practices, such as gender equality or employing workers with a disability.

This article was originally posted on comprara.com.au

About Author

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Paul has a lifetime’s experience in negotiation and is a published author of a bestselling book Sales vs Procurement (with Elliot Epstein). Paul leads negotiations as well as coaching teams in negotiation, and is a Fellow of CIPSA. You can learn more about him at his website www.negotiationchallenge.com

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