#002 | Negotiation Conversation with Laurie Guest

 

Laurie Guest

Laurie Guest

Join Penny Rosema as she has a conversation with professional speaker and author Laurie Guest. Laurie is a midwest farmer’s daughter with a smart-aleck personality.

Laurie and Penny discuss how important a “pick list” is in any contract negotiation. Be sure to listen to unlock free offerings.

Click here to watch the video.

 

 

Resources:

#001 | Ask Outrageously with Linda Swindling

From the courtroom to the boardroom, Linda Byars Swindling, JD, CSP, knows first hand about high-stakes communication, negotiating workplace drama, and influencing decision-makers.

In this interview you will hear from negotiation expert Linda Swindling on the results of her recent research and the top reasons people are hesitant to ask for what they want. Are you ready to ASK OUTRAGEOUSLY?

Resources:

Cost Drivers in Packaging & Packaging Material

This is a transcript of the Cookware Manufacturers Association podcast interview with Mike Smith– a respected packaging industry veteran. Through his unique approach to sourcing and his CFO orientation, he’s saved tens of millions of dollars for his employers.  In this interview, he shared details on cost drivers in packaging and his cost-saving knowledge.

If you would like to know more about Mike   – You can contact him directly via his email.

The interview:

Penny: Tell us how you came about your approach to packaging procurement?

Mike:  “I started my career in finance with a Fortune 500 food company and was pulled into some mergers and acquisitions projects, and later in my career, as a CFO, I completed an M & A transaction that created significant value, at a very low cost.

During my 13 years with a leading global packaging manufacturer, one of my roles was M & A integration and synergy achievement.  On one single M & A project, we had an initial target of $52 million in synergy savings, we achieved $104 million in savings two years ahead of schedule.  A significant portion of those savings came from Procurement projects.  We would bundle up the spend and get better pricing, and we’d also look at creative approaches to value drivers and how we could leverage those value drivers to increase our savings.”

Penny: You mentioned “Value Drivers,” for listeners that might not be familiar with the term – would you explain?

Mike:  This is where my CFO training and experience has proven to be a differentiator with regards to my approach to Procurement.

I completed the Mergers and Acquisitions certificate program at the Wharton School at the University of Pennsylvania.

I also had negotiations training with Max Bazerman, from the Harvard business school and Stuart Diamond from Wharton, both very accomplished leaders regarding negotiations and strategy.

One of the key learnings regarding acquisitions and negotiations was understanding the different value drivers for both the sell side, andthe buy side, and then framing your negotiation strategy around creating value for both organizations, maximizing the size of the pie.

In simple terms, value drivers are the different levers that influence value. One might be volume.  Increased volume could create value for both sides, conceivably a better price for the buyer, and increased total gross profit for the seller.

Penny: The next pressing question is – how did you find value drivers impact packaging?

Mike: This is where having a CFO perspective can create significant value or identify opportunities that a normal procurement professional might overlook, or feel they can’t influence because that’s not how they were trained in Procurement.    When a CFO looks at packaging, he or she would start with a review of the market, prior to pulling together an RFP.

3 Main Cost Drivers in Packaging

Penny: How do market conditions impact the cost of packaging?

Mike: It will directly impact your negotiations strategy. With regards to packaging, there are three main cost drivers,

  • The substrate,
  • The specifications and
  • The performance attributes

The substrate for corrugated packaging is the liner and medium, virgin or recycled, and for folding cartons, its typically CRB, SBS or CUK.

Typically, the cost of the fiber substrate might be between 60% and 70% of the total cost of your package.  For plastic packaging, the cost of resin and crude oil influences the cost of the packaging.

This is where market demand comes into play.  During a tight market, packaging companies will be coming at you with price increases, or your contract might even include language on automatically absorbing substrate inflation. This is procurement 101.

Conversely, they aren’t as eager to reduce pricing when the demand is soft and pricing is retreating.  At that point, the discussion will be around how much value they are creating for you through their R & D and customer support. 

Penny: Where does your CFO background and influence come into play?

Mike: It’s having a CFO level understanding of the market and the cost/value drivers in play.

For instance, you need to understand if your supplier is integrated or not, meaning, do they manufacture the substrate that is used to make your packaging?

Right now, almost all of the paper and paperboard substrate markets are soft, SBS especially, as well as liner and medium.

You could delink your substrate buy from your packaging buy in order to drive significant savings during periods of market softness for the substrate.

Penny: How do you delink your substrate cost from your packaging cost?

Mike: You can do it, if you have a significant amount of purchase volume.  You can also accomplish this by converting from an integrated supplier to a non-integrated supplier, or by dealing directly with the substrate manufacturers regarding your price for the liner or paperboard.

Penny: How does that create value?

Mike: Integrated suppliers typically hold their substrate pricing firm and fixed at a price that’s higher than the floor, (the lowest price they will sell their substrate at in the open market).

For instance, liner may be priced at $750 a ton right now, but liner manufacturers may be selling liner for export at only $400 a ton.

Those same liner manufacturers won’t sell their liner to you for less than $750 a ton in the box price, but they will sell liner to other converters for pricing north of the export market.

So, a liner manufacturer, with excess capacity who are exporting at a low price, will typically sell to independent converters at a price between the ceiling (the $750 a ton) and the floor, the $400 ton in the export market.

How close to the ceiling or the floor depends on the volume, the complexity of the business, etc. but that’s a large range for value creation.

If you’re paying $750 a ton for the fiber used to make corrugated boxes, and you can get that fiber for $550 a ton, that’s almost 30% savings.

Penny: Ok. Beyond the substrate integration, can you explain a little more about the cost drivers in packaging?

Mike: I mentioned earlier the three main cost drivers in packaging, the substrate, the specifications, and the performance.

I’ve talked about the substrate.

Specifications or the design of the packaging and the amount of raw material used to create has a significant impact on the cost.

In the corrugated market, for instance, integrated converters want to sell you as much fiber as they can in the boxes they are supplying.

Any box specifications they recommend may be heavier than what is really needed.

Most companies can take anywhere from 10% to 20% additional cost reduction by right-sizing their material specifications, for instance moving from 33# to 26# fiber, without impacting the performance.

Penny: You mentioned performance as a cost driver.  Can you explain what you meant?

Mike: When I talk about performance as one of the cost drivers in packaging, I’m talking about understanding how your specific packaging performs while it’s being manufactured and also while it’s being utilized.

So, performance on the manufacturing side, are you placing long-running orders for thousands of units that provides for manufacturing efficiencies and optimization, or is your order pattern choppy and tend to be small runs.

Those boxes will cost more, because of the poor performance/efficiencies experienced by the manufacturer.

By the same token, with regards to cost drivers, does the packaging run well on your equipment, or does it cause equipment downtime and costly customer damage issues?

Those again are cost drivers in packaging that need to be understood and considered when evaluating your packaging spend and your suppliers.

When I talk about performance as one of the cost drivers in packaging, I’m talking about understanding how your specific packaging performs while it’s being manufactured and also while it’s being utilized.”

Penny: What about e-commerce – we had a conversation earlier – how is e-commerce having an impact on corrugated packaging?

Mike: First of all, I think the 10% annual growth in e-commerce has pushed the producers to invest heavily in both fiber capacity and converting capacity.  The US market capacity has grown substantially, and it’s expected to continue to grow for the next two to three years. I think most of this investment has been driven by the growth in E-Commerce.

Well, E-commerce shippers are getting smarter.  They aren’t using as much corrugated.  They are using more mailers and they are using the right size packaging to reduce the logistics cost and reducing dunnage and other waste. This means the overall demand for corrugated may not support the capacity growth that’s planned.

Companies like Packsize, based in Salt Lake City, Utah, have developed equipment to manufacture right sized boxes on demand.  They supply the equipment, and you buy the fiber from them, in bulk, to make the needed corrugated boxes on site.  This different model wipes out an entire layer of the supply chain and that layer of cost.  It also provides the following typical benefits:

  • 30% to 40% reduction in cube volume (and dimensional freight savings)
  • 50% increase in the quantity of orders filled per plane or truckload
  • 60% decrease in void or filler reduction
  • All of these things benefit the environment and support sustainability initiatives, but they are also great for the bottom line, by providing significant savings.  If you utilize e-commerce to sell your products, you need to explore companies like Packsize and make your own boxes.

Even if you don’t use E-Commerce, making boxes on site is a great solution if you have a lot of small run orders, 1,000 boxes or less.

Penny: What can you tell us about other market influences – like China coming into the market

Mike: China and other foreign countries have raised their quality requirements on imported fiber.  Recyclers are having a hard time meeting those standards, so the export demand is soft, driving down the market value of recycled fiber, and the cost of recycled liner and paperboard.  I think ultimately, you will have countries that need low cost recycled fiber sources, like China, will eventually set up their own fiber operations in the US, where recycled fiber is cheap and plentiful.  They will make their own substrates and will export it back to their home country.  So over time, you’ll see recycled fiber regain some of its lost market pricing as demand for this fiber increases.

Penny:

Thank you, Mike for the information and your insight today.

If you would like to know more about Mike   – You can contact him directly at his email.

Also, remember to approach every negotiation from 2 Views – yours and our counterpart.

For more information contact Penny Rosema

Negotiations – You CAN predict what will happen next!

A common myth in negotiations is that you can’t predict what your counterpart will do next. I disagree. Use the approach professional buyers use. You can predict the behavior of your counterpart when you follow a negotiation process.

“How can you have a consistent process? Aren’t negotiators like drunks? You can never tell what a they will do from one minute to the next.” [Strategic Negotiations, Brian Dietmeyer]

You can predict with fair amount of certainty what will happen next. Negotiations don’t have to be unpredictable. Professional buyers anticipate the potential outcomes of the negotiation by being prepared and following a few simple steps.

Negotiations – The 4-step process

  1. Research- Acquire as much information as you can about the product or service. Most people do this intuitively.
  2. Target Range – think about the potential range of a successful negotiation. Most people also do this intuitively.
    1. what does a really great deal look like?
    2. At what point will you walk away?
  3. Identify your alternatives. Many novice negotiators miss this step
    1. What are your alternatives if you can’t come to an agreement?
    2. Never agree to a price that is worse than one of your alternatives
    3. Remember – doing nothing is an alternative.
  4. Strategy List. Novice negotiators often miss this step.
    1. What is important to you?
    2. Are there concessions they could give you that cost them nothing or very little but carry a great value to you?

Predicting what will happen next

How does this 4-step process help predict what your counterpart will do next?  It doesn’t. Unless you repeat the same steps for your counterpart. Applying the process from your counterpart’s point of view is the secret negotiation sauce.  Take time to look at the negotiation from 2-views, both yours AND your counterpart. Novice negotiators haven’t even thought about this important step.

  1. Research
    1. What research are they looking at?
    2. Where are they getting their information from?
    3. What assumptions are they making?
    4. Are their assumptions accurate?
    5. Can you correct assumptions that are inaccurate?
  2. Target Range
    1. What might a great deal look like for them?
    2. What is their walk away point?
  3. Alternatives
    1. What are their alternatives to “no deal”?
    2. Remember – doing nothing is an alternative for them too.
  4. Strategy List
    1. What is important to them?
    2. Are there concessions you could give that cost you nothing or very little but are a great value to them?

Think about how helpful it is to have this information during your negotiation conversation. This simple process works on negotiations for $100 or  $40 Million. Once you start looking at the negotiation from your counterpart’s view you can predict with greater confidence what will happen next. You will start asking deeper questions

  • Who is making the final contract decision? In some cases, their internal negotiations are more difficult than their external ones.
  • What is most important to your counter-part? You will start thinking about components of the negotiation beyond price. Is delivery, terms, order size, inventory, or brand more important to them?
  • You will look closer at all the potential concessions? Do you have a strategy for how and when to offer your concessions?

Start with a plan. Negotiate respectfully, ask the good question and listen. You will find in your next negotiation you can predict with a fair amount of certainty what will happen next.

Law of reciprocity

How does it impact a concession to split the difference?

If someone does something nice for you there is a psychological impulse for you to do something nice for them. A strong desire to reciprocate.

Professional buyers are familiar with the law of reciprocity. Strategic concessions at the right time will inspire the spirit of reciprocity and can be effective in negotiating the best deal for both parties.

Example of Law of reciprocity

Have you ever had someone hold the door open for you as you came to the entrance of a building?  Did you find yourself holding second door open for them? If someone does something nice for your there is an impulse for you to do something nice for them in return. The same can happen in a negotiation and  it often influences the concessions that are made.

Be prepared and be aware

The law of reciprocity in negotiations can be used for and against you. Your best defense is  being prepared and being aware. Don’t wing it. Once example is accepting a concession to “split the difference.”

How do you respond in a negotiation when your counterpart offers to “split the difference?” The offer suggests you give a fair play response, by “meeting in the middle.” This makes good business sense only if you are prepared for it.  Identify your negotiation range. The range between “no deal” and your “best deal.”

  • Never accept an offer that is worse than one of your alternatives
  • Identify your best deal. That is the offer that is at or above your highest expectations

Splitting the difference example

You are selling a vase at the local flee market for $100.

A potential buyer asks if you would sell it for $30.

You respond, “I would consider $60.”

Your counterpart suggests “let’s split the difference.”

Once your range of potential agreement is lower, splitting the difference leads to a lower negotiated price. In this example at $45

 

Take the same scenario with the same vase at  $100.

A potential buyer asks if you would sell it for $60. You counter offer $80.

In this scenario splitting the difference delivers an outcome of $70.

Your response to the first offer makes a difference

  1. Identify your best alternative to no deal. That alternative where you will walk away from the negotiation. You always have alternatives. Never agree to a price that is worse than one of your best alternatives.
  2. Be sure your price is based on reliable and accurate Be prepared to explain and clarify the value of the item.
  3. Make small incremental Just because an offer is significantly lower than your asking price it doesn’t’ mean you have to make an equally large concession.
  4. Your concession doesn’t have to be on the price. Identify other types of concessions. Do you have something of value to add to the negotiation? In the flea market example, a second vase or similar decorative piece? In a business negotiation think about delivery, payment terms, or additional customer service as concessions.
  5. Never let your counterpart ignore or downplay your concession.

Be prepared and be aware. Strategic concessions at the right time will inspire the spirit of reciprocity and is an effective tool. Use it with the intent of negotiating the best deal for both parties.

Negotiation Strategy List

Think about your last big negotiation. Did you develop a negotiation strategy list ahead of time? Remember that point when your counterpart asked for a concession? A lower price, better delivery time or longer payment terms? How did you respond? Rosemary Coates, a negotiation professional with THINK Inc, taught me to use the phrase, “There may be a path to that.” If you have a negotiation strategy list, which includes those items you have not yet negotiated, you can offer a trade. 

For example, you might respond “would you consider sharing your customer contact list and giving us three personal introductions?”  Assuming they are a fan of your product or service they can give you a valuable concession that costs them nothing and would mean a great deal to you. 

How to prepare your negotiation strategy list

Before going into a negotiation, be clear on what a “win” is for you. The negotiation strategy list is your secret weapon. It gives you the opportunity to keep the negotiation conversation going. Professional buyers know at some point in the negotiation you may face an impasse. You can hit a log jam in your conversations and suddenly find you are going nowhere. 

The negotiation strategy list is a creative list of negotiable items that add value. They could be cost related. However, they do not have to be. It might be shorter lead-time, social media marketing support, payment terms, new technology, or even referral for additional business. Include as many variables as possible.  There are a few things to remember about your list:

  • create it early in the negotiation process and brainstorm with your team
  • be creative
  • prioritize the list
  • create a list for both you and your counterpart

If you have a couple extra minutes for research, listen to this podcast interview with Laurie Guest. We discuss more ideas on how to prepare a wish list or pick list for your negotiation strategy list.

Brainstorm – include your team

Include everyone you can think of during the brainstorming process. Large organizations leverage cross-functional teams. Representatives from different divisions are invited to provide input. Sourcing teams can include representatives from planning, finance, forecasting, manufacturing, engineering, and marketing. Input from the members of the cross-functional team is the key to successful contracts for organizations large and small.

Remember even if you are a small organization or an ‘entrepreneur of the one’ you can leverage the brainstorming process.

  • Create your own board of advisors
  • Find a Negotiation Buddy – a mentor, your spouse or significant other 
  • Hire a Negotiation Coach 

Be Creative

The longer the list the more flexibility you have with the negotiation. The cross-functional team collects ideas from every member. The brainstorming session is designed so everyone offers at least three ideas. Nothing is sacred. No idea is ruled out. My writing coach Ken Wachsberger teaches the same technique for freewriting: “Even the crazy ideas get included. This creative process will inspire additional ideas or new twists to previous ideas. Go crazy. Have fun with it.” 

The longer the list the better.

You won’t use everything. However, the list gives you the flexibility to respond to a request for a concession. The professional buyer motto is “Always trade; never concede.”

Prioritize the list

Once you have your negotiation strategy list, prioritize the items. Categorize each item as A, B, or C status.  This is the reality check. 

Category A items add the most value to a negotiated deal.  They can also be the “low hanging fruit” or items that would be an easy concession for your counterpart. 

Category B will be the items that would be nice to have but less valuable than category A

Category C have less value than category B but are still good for the final contract

Review and Refine

You will get the most value from your strategy list when you review and refine the list throughout the negotiation process. As additional information becomes available during conversations with your team, your counterpart or other sources it can spur new ideas for the list that can add value to the final contract for both you and your counterpart. 

List the items that mean the most to you, broken apart and ranked into bite-size pieces. Now you can strategically negotiate a great deal. 

Rinse and Repeat

Follow the same steps for your counterpart. What is on her strategy list? What negotiable items can you think of that mean a lot to her but cost you very little or nothing? Put an equal amount of time and thought into her list as you did for your own negotiation strategy list. Look beyond the obvious. Think about her constraints, needs, and assumptions. 

Negotiation Concessions

The key to a successful negotiation is the negotiation strategy list. In most negotiations, you will eventually face the request for a concession.

  • Will you take less?
  • We don’t have the budget.  
  • We can get the same thing cheaper.

The best response is: “We understand the constraints of a budget before we give up let’s continue the conversation and explore some options. With a little creativity, there may be a path to an agreement that provides value to both of us.”

Go to your negotiation strategy list and start working to a “path to an agreement”. Never concede always trade.

Have more questions, please reach out! Penny is available for coaching you through an approaching negotiation and to develop a negotiation strategy you can always refer to.

Can Leveraging Your ‘Nice’ be a Negotiation Strategy?

Negotiating can be intimidating whether you are negotiating your first salary or you are a small business owner negotiating a new contract. Developing a negotiation strategy in advance increases positive outcomes. Knowing your audience and knowing what you want will have a positive influence.

Having a negotiation strategy doesn’t make you a snake

Personality type has little to do with the success of a negotiation. As a result, an introvert with a used car dealer negotiation strategy will succeed far better than an extrovert with no plan.

People from the Midwest have a reputation for being nice. Other parts of the country are known for their competitive personality type. Some might suggest Midwesterners suffer in the negotiation because they are too accommodating.

  • Can a nice person be taken advantage of? Yes.
  • Can they be successful in negotiations? Definitely.
  • Does the nice guy struggle in the negotiation? Yes, but only in the same way the bully struggles in a negotiation.

The real negotiation issue is a failure to plan

The nice gal has a choice. She can be the vulnerable underdog or leverage the perception she is a pushover. She can use it as part of her negotiation strategy. The person with the most information in the negotiation has the most power. Therefore, when you come prepared with a negotiation strategy and you follow a process you can guarantee a successful negotiation regardless of your personality type.

If you tend to be to be accommodating your best defense is to start with a plan 

Target goal–identify your target goal and write it down. Certainly determine ahead of time when will you walk away. Share the strategy with your negotiation coach, negotiation buddy, or someone that understands your commitment to sticking to the plan. Make a promise to check in with them before you make a concession and before you accept an offer.

Assumptions –  write them down and test them. You have to make assumptions. Just remember some of them are wrong. Figure out which ones are real. Ask questions, dig around for information. Test your assumptions.

Alternatives – write them down. List all the alternatives you have if you don’t come to an agreement.  Remember there is always an alternative to do nothing. Never agree to a deal that is worse than one of your alternatives.

Repeat the process – follow the same steps for your counterpart and write them down. What is their target goal? What assumptions are they making? What are their alternatives? What are their constraints? Who is really making the decision?

Leverage your midwestern style for your next negotiation

If you have an easy-going personality type, the bully negotiator will mistakenly assume you will be easy to intimidate. Don’t be worried if she is thinking, “This could be an easy pushover.”  Leverage her assumption.  Come to the table prepared with a negotiation strategy. Be the most prepared party at the table. Preparation beats bully every time.

Underestimating the Underdog in a Negotiation

Big and small football players demonstrate an Underdog in a Negotiation

It’s that time of year for college championship football games. Are you the one cheering for the underdog?

Have you ever felt like the underdog in a negotiation? It’s the playoff game and your opponent has the home team advantage. The sun is in your eyes. The referee has it in for you.

Negotiations are often viewed as a win-lose game. The more you take the less I get. Sound familiar?  Think about how you approach any negotiation.

  • How would your life be different if you were a more effective negotiator?
  • How would your business be more profitable if you negotiated like a professional?
  • Have you ever wondered how the professional buyer approaches a negotiation?

Whether You’re the Underdog in a Negotiation – or Not – Use These 3 Tips for Success

The first step to success in any negotiation is being aware of your counterpart’s view. For the inexperienced negotiator, it’s natural to default to a one-sided view. Your personal view.

Here are three tips to improving the outcome by looking at the negotiation from 2 views

  1. Be more curious – look at the negotiation from your counterpart’s view and be curious about their strategy, alternatives and target goal. Think about what a great deal looks like from their perspective
  2. Ask questions–and then be quiet! Count to ten. Bite your lip if you have to. Just be quiet. We are naturally uncomfortable with silence. Someone will fill the void with information. Let your counterpart talk.
  3. Know your alternatives – document and fully understand your alternatives. What happens if you don’t come to an agreement? Never close a deal that is worse than one of your alternatives. It’s surprising how often people get caught up in the emotion and overlook a better alternative.

It’s that time of year for championship games and new year resolutions. Start 2019 with the resolution to negotiate like a professional. Be curious, ask clarifying questions and then just listen. Make sure you know your alternatives and never agree to a deal that is worth less than one of your alternatives.  If you follow these negotiation tips, even if you were considered the underdog in a negotiation you will come out heads and tails ahead.

Should I negotiate the job offer?

You have an offer. It’s your dream job. Would you dare negotiate for more than the first offer? Is there a voice in you head saying “don’t be a fool, what if they retract the offer?”Challenge that voice. That is the voice of “assumptions”.

Think about past assumptions. Do you remember when you were convinced you were at the height of fashion? Which one was it for you? The bell-bottoms, platform shoes or miniskirts . You thought you were smashing. Now you look at the photograph and laugh, cringe or cry a little. Those cringeworthy moments should teach you something.  The next time you are certain about something stop to reflect on past assumptions. This same strategy applies to assumptions you make in a negotiation. . Consider the example of the job offer.

Your have just been offered your dream job. If you don’t accept the offer as given they could withdraw it. Is this an assumption you should challenge? Think about the time and effort put into setting up the rounds of interviews and getting the management team to agree on the ideal candidate.  Do you believe asking a couple questions will cause the withdrawal of the offer? How would that conversation go?

“I am excited to let you know the management team has come to a decision and are ready to offer you the position at $60,000 annually, with benefits and 2 weeks annual vacation pay.”

“Thank you! I am so happy to hear from you. I am excited to use by background in social media to address the marketing challenges and the 401K Matching is great! There are a couple questions I have about the offer.”

“Questions? Certainly not!  Do you want the job or not!

Does this sound a bit ridiculous? Of course it does. Yet that is what happens when you make assumptions. It is helpful to remember the answer is ‘NO”  if you don’t ask. Here are some helpful negotiation tips:

  • Be prepared – Identify your market value
  • Identify compensation goals and your walk away point -write them down
  • Don’t be afraid to ask – be gracious and be prepared with questions when the offer is made
  • Remember – The answer is NO if you don’t ask

Do you believe asking clarifying questions would be grounds to withdraw an offer? Of course not. It is possible, however that  if you don’t negotiate the hiring manager may question their decision to hire you.