Regardless of whether it’s in a LCC (Low Cost Country) or right at home, negotiating a manufacturing or supply agreement with a new vendor is always challenging and often painful.
When we’re sitting across from the table from a supplier, I often flash back to high school Latin class. The lengthy process required to get to the goal line reminds me of this quote from Ovid, “Perfer et obdura, dolor hic tibi proderit olim” or “Be patient and tough; someday this pain will be useful to you”.
Well, the pain of hundreds of negotiations (and a high school Classics education) have been useful to us. During a career spent crafting countless supply agreements, I’ve come up with a checklist that keeps us on track and helps to minimize the pain. It’s summarized below:
- In advance of meeting with the supplier (always in person) submit an agenda setting the goals for the discussion.
- Also in advance, provide rock solid drawings, CAD files, prototypes, specifications, etc. By the time you’re ready to negotiate the details of a supply agreement, the technical variables should be well defined.
- During the meeting, pause often to summarize key points. Use that pause to restate important elements using slightly different language. This reinforces the importance of the topic and helps to prevent doubt or misunderstanding.
- Embrace a “win-win” mindset. You don’t want to do business with a supplier that can’t make money or feels that they’ve been backed into a corner.
- Per Ovid, be firm, but also be respectful. No one likes to do business with someone who swaggers like a pimp. If you get to loggerheads, ask for a break or politely disengage. Stalking out of the building doesn’t accomplish anything.
- Include arbitration language in the written agreement. You don’t want to “go legal” if there’s anyway to avoid it. We recommend CIETAC arbitration be utilized in China.
- At the conclusion of the negotiation, write the key points of the agreement on the whiteboard. Work for verbal confirmation as well as head nods and other physical checks to confirm that you are in alignment. Then publish a written summary promptly.
This is a lengthy and granular process, but it’s worth it. Marching slowly and deliberately forward, taking regular breaks to summarize your mutual goals (especially offshore) and publishing meeting notes pays dividends. And your high school Classics teacher will be proud of you!