Negotiating for Value

Learning the total cost of ownership process can place you in a better position to negotiate for value. Here are 8 lessons from the medical device industry


By Martin P. Finkle, CPT

Negotiation is far more than getting the best price. Many procurement specialists, especially in the medical device industry, focus too narrowly on dollars and cents when dealing with suppliers. Whether you're buying stents, joints or replacement parts or need to fulfill contracts, you need to include the critical variable for any negotiation — value. Following are eight lessons derived from experience working in the medical device industry, but which are applicable across a broad range of industries.

1. Consider the Total Cost of Ownership

To incorporate value into your negotiation, use the "total cost of ownership (TCO) analysis" approach, combining the hard and soft costs of owning networked information assets. For example, the hard costs of a blood analysis machine would include the purchase price, implementation fees, upgrades, maintenance contracts, support contracts and disposal costs. All are hard because they're tangible and easily accounted for.

But even more important in the medical supply industry, and in other fields, are the soft costs related to management, support, training, hidden costs and downtime. Since these costs don't occur at the time of acquisition, they're often overlooked in budgets — leading to unexpected increases or even a transfer of management and responsibility to the end user.

To analyze TCO, you as the procurement specialist should interview the internal users and weigh the importance on all soft costs. Your findings should lead to the correct purchasing decisions.

2. Get Involved in the Beginning

Be sure you're brought into the procurement process up front, not at the end when you'll face pressure to extract a savings after the deal is all but done. At that point, nearly all variables have been decided and you'll be forced to resort to persuasion or haggling. Get involved as soon as the scope of work or specifications are discussed, which will ensure multiple variables are in play.

In medical devices, internal partners who request equipment, fulfillment, molecule or other components from suppliers tend to compromise too easily on terms. That could weaken your position and create an imbalance of power for the other side. But when you're involved from the start, you can better understand the business or scientific needs and build them into your negotiation.

3. See Who's Got More Power

Any significant negotiation needs power balance analysis, a robust and creative process with an internal client or colleagues. Start by comparing your company's strengths and weaknesses to the supplier and listing what you believe each side wants. Your wish list should include items that are "nice to have" but are not the primary reasons you're being driven to negotiate. Then consider concessions you're willing to make. This process will enable you to develop your objectives, opening statement and strategy.

When working in a competitive bid process, make any RFP or RFQ as specific as possible to arm yourself with more power. During the negotiation, express what it is that your side wants rather than suggest that suppliers guess. Remember that suppliers don't have crystal balls and aren't mind readers. Allowing the supplier to guess at your needs may result in a "pin the tail on the donkey" strategy where you could be hesitant to ask for something and merely hope the supplier offers more than what's requested. If the supplier is given the opportunity to make the first proposal, the odds are it will be much closer to his or her ideal position than to yours.

4. Ask the Right Questions

With the total cost of ownership approach, you as the buyer need to consider information from the other party's vantage points as well as your own. It will help you develop open-ended questions so you can get beyond yes-no responses and secure the information you need for the negotiation process. The answers will allow you to put the proper value scale on the categories to be considered. This process can also be used when developing an RFP or when interviewing potential suppliers.

For example, if a total onsite service contract for the blood analysis machine has a value scale of 10 and price has a value scale of 8, the better service contract of the higher-price machine could outweigh the lower price of a competitor's machine.

5. Reveal Information Early

Some people have the misconception that disclosing information creates weakness, which is not true. Share the right information with suppliers early in the discussion and you'll earn more respect. You'll create trust and will better understand the supplier's position. This is especially true with bad news (such as you don't need to purchase nearly as much as you did last year). If you hide this type of information, the supplier will probably start guessing — and most of the time he or she will be wrong, leading to argument, distrust and disappointment. Your goal should never be to lengthen the negotiation process but to complete it as soon as possible, saving time, money and other things you value most.

Bookmark and Share
This content continues onto the next page...
  • Enhance Your Experience.

    When you register for SDCExec.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

Already have an account? Click here to Log in.

Enhance Your Experience.

When you register for SDCExec.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

OR

Complete the registration form.

Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required