Negotiation for Value – Lessons from the Medical Device Industry

Negotiation is about value, says Scotwork's Alan Smith

Specialist in Negotiation and Director of Scotwork International Alan Smith talks to MedLatest

Negotiation for Value

Negotiation is about far more than getting the best price. Many procurement specialists, particularly in the medical device industry, focus too narrowly on money when dealing with suppliers. Whether you’re buying stents, joints or replacement parts, or need to fulfil contracts, you need to include the critical variable for any negotiation — value. Following are seven lessons derived from experience working in the medical device industry that are applicable across a broad range of industries.

Consider the Total Cost of Ownership

To incorporate value into your negotiation, use the “total cost of ownership analysis” approach. This combines 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. These can be 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. The buyer can experience unexpected increases or even a transfer of management and responsibility to the end user.

Early Involvement

Be sure you’re in 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. You should aim to involve yourself in discussions as soon as possible about the scope of work or specifications. This will ensure multiple variables are in play.

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. This will arm you with more power. During the negotiation, express what it is that your side wants. Remember that suppliers don’t have crystal balls and aren’t mind readers. Allowing the supplier to guess your needs may result in “pin the tail on the donkey” strategy. You mustn’t be hesitant to ask for something and merely hope the supplier offers more than what’s requested. 

Ask the Right Questions

Let’s look at the total cost of ownership approach from the buyer’s perspective. In so doing, you 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. This in turn will 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. You can use this process when developing an RFP or when interviewing potential suppliers.

Here’s an example. A total onsite service contract for the blood analysis machine has a value scale of 10 and price has a value scale of 8. In this case the better service contract of the higher-price machine could outweigh the lower price of a competitor’s machine.

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. For example you may not 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! This leads to argument, distrust and disappointment. Your goal should never be to lengthen the negotiation process but to complete it as soon as possible. This saves time, money and other things you value most.

Negotiation of More Favourable Terms

The total cost of ownership approach provides you and the supplier with more flexibility in negotiating terms and fees. A good example may be the length of the service contract for the blood analysis machine. If this is more important to you, then the supplier may be able to offer higher value. As a result the supplier’s overall standing improves and it helps you get what you want.

Negotiation when Suppliers say they’ve been “Stripped to the Bone”

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, their margins may be nearing a limit. Furthermore you may have already achieved the best price on a particular stent, screw or other components. However they may have hidden added value that may be worth more than another price cut. Manuals, training, online tutorials or onsite help could add value to your physicians, clinicians or others in the lab. In this case, use provocative questions like, “Under what circumstances would you (the supplier) provide what I am asking for?”

Conclusion: Keep Searching for Value

Effective negotiations require much more than just the art of persuasion — which will take you only so far. Especially in today’s tough economy, always look for value in buying and selling. It can help you partner more closely with suppliers to meet your monetary goals. At the same time, you’ll be able to meet others’ needs, such as quality-of-life goals for your scientists, administrators and other health professionals.

Learn the total cost of ownership process to place you and your firm in a better position to negotiate for value and maximise results. Plus, you’ll always be able to defend your decision not to purchase the least expensive component, monitor, stent or assay machine. You’ll be able to explain how negotiating for value paid off.

About Scotwork Ltd

Scotwork Ltd is a leading negotiation skills training and development consultancy, headquartered in Glasgow since 1975. It has grown into the world’s number one independent negotiation consultancy, operating globally from 46 offices. 

Scotwork Ltd uses its data-driven insights and unrivalled expertise to provide impactful negotiation training, advice and coaching to a global portfolio of clients across all sectors, all functions and all levels. It has coached hundreds of thousands of senior managers across the world, covering 29 different languages.  

Scotwork Ltd mixes global reach with rich local knowledge, investing in local consultants to ensure programmes are delivered with maximum understanding of local language, culture and business practices.  

Since 1989, Scotwork Ltd has been measuring and delivering industry-leading ROI. 

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