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Finding the Win-Win Deal
Freight negotiations don’t need to be like poker games, where only one side can win the pot.
Negotiation is something logistics professionals will be called upon to conduct many times throughout their careers. It comes with the territory. Successful negotiation is essential in business – especially when the economy is struggling. Everyone strives for the best value and the lowest costs when obtaining the best service possible.
Unfortunately, however, when it comes to freight negotiations, many companies specialize in the “win-lose” approach – a positional or distributive negotiation whereby one party’s gain is another party’s loss.
In win-lose bargaining, both parties are in direct competition and there can be only one winner.
Understandably, many people look at win-lose as a kind of game. Indeed, it can be compared to poker in that it is adversarial in nature, with both side trying to win the pot through keen observance of an opponent’s weaknesses, and a strategic use of bargaining chips. The big difference, of course, is that win-lose negotiations are not a game. And the stakes are very real.
Poker players like to play their cards “close to the vest,” careful not to share information or reveal too much to their opponent. The same is true in win-lose negotiations, where there is minimal disclosures to the other party. Furthermore, buyers avoid giving any clues (or “tells”) that would reveal their true position. In fact, good negotiators are known for their poker faces. They ‘hold’ and ‘raise’ as necessary with pressure tactics and they pressure their opponents through delays, walkouts, and threats.
How effective is this approach to negotiations? Not very. In fact, it is often counterproductive and does not have any long-term sustainability.
Even when you win in this confrontational style of business, you still lose because the relationship with your counterpart is irreparably damaged. If you win enough your opponent will eventually stop playing the game. No one likes to lose, and they certainly don’t appreciate being bullied. As the relationship deteriorates, the winner can expect the tables to turn when their opponent gets even by providing substandard service at lower cost in an effort to recoup losses.
In win-lose negotiations, logistic professionals are taking a short-term view, potentially locking their companies into a narrow range of positive outcomes. Win-lose does not serve the long-term interests of the winner, even in if short-term objectives are achieved.
“Win-win” negotiations, on the other hand, involve integrative bargaining or interest-based bargaining, where the parties collaborate to find a mutually beneficial solution.
In the win-win approach to freight negotiations, both the shipper and carrier are engaged in finding the best solutions to move freight economically. It yields a freight agreement that each party is willing to fulfill.
Successful logistics buyers looking to achieve best outcomes use win-win techniques where both parties in the negotiation walk away with the sense they have accomplished their objectives. Relationships are developed that have a foundation of trust because they are mutually beneficial. At the heart of the negotiation is true cooperative problem solving, cost cutting, customer service, and mutual profit.
This kind of collaborative takes additional work on the part of the logistics buyer.
This is the most important element in achieving an agreement… and it starts long before you sit down at the table. It involves a lot of data gathering.
First, understand the shipment. What is the size? The weight? The average cube per shipment? What kind of commodity is it? Is it dangerous? Does it have special requirements? Will it need temperature controls? Additional security? Dunnage?
Next, you have to know your customer’s requirements. How much will be shipped? How often? What are the delivery locations? What about the dock-side requirements? Unloading equipment at consignee? Dock? Tailgate? Pallet? Hand bomb?
Now, what kind of equipment will be required? Dry van? Reefer? Heated service? Flat bed? Tridem? Tandem?
And finally, what is the service cycle time? What is the best mode of transportation?
Proper preparation will help you understand the implicit costs. Use benchmarking, historical data, industry associations, and the Internet to map out what you need. Based on this information, the shipper can set flexible objectives. They’ll consider what would be the ideal situation, the very best that can be achieved. They’ll also get a sense of the biggest challenges they’ll face.
Preparation also involves finding the right transportation suppliers to negotiate with. Research and qualify the carriers that can provide the services you required. Find out as much about the companies as you can, the lanes they service, their service objectives, their response to damages, their reputation in the market place, the corporate culture they have fostered… anything that will help with the discussion.
2. Exchanging Information
At preliminary meetings with potential partners, a frank and open discussion is the best way to meet objectives. Shipment data is shared and service requirements are discussed. Where the sides differ, their expertise will be needed to improve the cost and service.
3. Making a Deal
When you’re close to an agreement, have the carrier provide the full cost and service proposal electronically in advance of the meeting. This allows you to prepare for the meeting. Analyze the quote against current shipping data to understand the value proposition. The meeting agenda should consist of a discussion to understand services, rates, fuel surcharges and ancillary charges, and process improvements.
There is no room now for misconceptions. Don’t be afraid to ask the carrier representative how rates can be lowered. Talk about what needs to be done. Never assume the amount quoted is the final price. Most carriers’ rates have some “wiggle” room.
The steps you take to improve the transportation deal are important blocks to building a solid relationship. Some concessions may have to be provided, to get lower costs, but it is worth it. Problem solving must be done jointly.
Focus on the issues at hand, don’t take positions, and be flexible, using fair business practices. Most important, use reason not control, pressure, or power. Listen to what is being said. Find ways to make your freight attractive to the carrier.
This is true win-win negotiating, and it ensures that in the long run, everyone wins.
Article appeared in the "Logistics Magazine" May June
Learn more about the author, Sam Kopytowski.
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