Chemical Engineering January 2012 - 31

don't have crystal balls and aren't
mind readers. Allowing the supplier to
guess your needs may result in a long
process before the two parties arrive at
a proposal that your company is comfortable
accepting. But by structuring
expectations, you increase the likelihood
that the supplier's first proposal
will be closer to your ideal position.
For example, if you have a specific
budget that cannot be exceeded, do
you tell the supplier up front or wait
for a bid to come in? If you reveal this
up front, the vendor may be able to
package a proposal that meets your
budget requirement, but at the same
time allows the vendor to obtain additional
value in other areas, such as
supplying a longterm service contract
or multiple years of recommended
spare parts. If the budget ceiling is not
revealed upfront, the vendor's price
may come in high and you will need
to get the person to change his or her
mind or lower the price.
Be ready to explain additional information
to the other side, as long as
it helps you clearly structure the supplier's
expectations in the right direction.
So by telling a vendor you have
multiple qualified suppliers,
you're
structuring expectations that he or
she will need to provide your company
with good value to be selected.
Any information that may lower or
minimize the other party's expectations
gives you more bargaining power
and should be revealed early on, even
if not requested. If the supplier is reluctant
to share information, you can
trade information that you deem important
for other information that the
supplier wants from you, such as the
total potential business your company
might offer.
Ask open-ended questions. In negotiations,
ask open-ended questions
designed to induce the other side to
provide more detailed information. If
you've been dealing with a supplier for
a long time, through multiple rounds
of negotiations against commodities or
services that have remained constant
over time, its margins may be nearing
a limit. You may have gotten the best
price on a particular heat exchanger,
programmable logic controller (PLC)
system, pump or raw material. But this
supplier may have manuals, online tutorials
and service plans that could add
a level of value to your plant engineering
and service personnel - which may
be more important than the purchase
price. In this case, you should use provocative
questions like, " Under what
circumstances would you [the supplier]
provide what I am asking for? "
For example, the supplier might have
an online tutorial on Type 21 pump
seal change-out that your maintenance
staff could use. So it may be a good idea
to ask under what circumstances you
could get access to the tutorial.
If you're considering several suppliers,
reveal that to a vendor - but
if, internally, your team believes that
this vendor's equipment is best, keep
that information confidential.
Propose first. In cases where the
TCO model is relatively simple, you
know the market pricing, and there
are few variables, such as the purchase
of a readily available bulkchemical
commodity, you may want
to make the first proposal to the supplier.
The worst that could happen is
that the supplier says, " Yes, " leaving
you to wonder what you left on the
table. But if you are happy with the
deal, move on and sharpen your pencil
for the next transaction.
Add value. Another useful technique
for negotiating is known as the " add
on, " where bare-bones, stripped models
are quoted to meet the low-cost
category, and you must ask for specific
items to be included based on their importance
and value scale. This enables
you to start with a low price and then
add value back in specifically where
it is needed to meet the requirements
of your company's internal users. This
technique will also allow the internal
user to be involved in the process
while seeing the cost and value of the
required specifications.
For example, if you were specifying
a process chiller, you could start with
an indoor, water-cooled, standard electrical,
no-process pumps specification.
After receiving bids, you could ask for
all of the above - but you could do so
one at a time, as equipment options,
until you have built the package that
is best for your company's situation.
Usually, the seller will quote the lowest
price on the base package and offer the
best price for each option, thinking that
each successive option will be the one
to close the deal. In this way, you can
then build up the package to the level
you want or need based on the costs.
If you're considering leasing equipment,
then leasing would need a high
relative value in the TCO process. In
some cases, the total leased price over
the full contract length could be less
expensive on the surface, but would be
offset by extension costs or equipmentreplacement
costs. So in this instance,
it may be better to purchase a piece of
equipment that seems more expensive
on the surface, but comes with lower
additional costs.
TCO helps reach company goals
Turbulent economies demand that
we continually seek value in buying
and selling. The TCO process can better
position you and your company
to maximize results. It will help you
defend why, for example, you might
not be purchasing the least expensive
heat exchanger, PLC, or pump from a
purely price-tag perspective - as you
explain the critical value proposition.
When you begin to look at total cost
of ownership, you may be able to partner
more closely with the supplier to
meet your monetary goals, and just as
important, maintain the guiding principles
of your plant, process and maintenance
professionals.
■
Edited by Scott Jenkins
Further reading
1. Fisher, R., Ury, W. and Patton, B., " Getting to
Yes: Negotiating Agreement Without Giving
In. " Revised ed., Penguin Group (USA) Inc.,
New York, 2011.
2. Harvard Business Essentials Series. " Guide
to Negotiation. " Harvard Business School
Publishing Corp. Boston, 2003.
3. Cheverton, Peter and van der Velde, Jan.,
" Understanding the Professional Buyer:
What Every Sales Professional Should Know
About How the Modern Buyer Thinks and
Behaves. " Kogan Page Ltd., London. 2010.
Author
Rich Waldrop is vice president
of Scotwork (NA) Inc.
(400 Lanidex Plaza, Parsippany,
NJ
07054; Website:
www.scotworkusa.com; Email:
rich.waldrop@scotwork.com;
Phone:
973-428-1991),
the
N. American div. of Scotwork
Negotiating Skills, the world's
largest independent provider
of negotiation skills training
and consulting. Waldrop
brings 25 years of experience in manufacturing
and engineering, working in areas such as production,
inventory control, sales and finance. He is a
former member of AIChE, APICS and ASHRAE
and current member of ASTD and IACCM.
CHEMICAL ENGINEERING WWW.CHE.COM JANUARY 2012 29
http://www.scotworkusa.com http://WWW.CHE.COM
Chemical Engineering January 2012

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