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Several years ago, we were at a training course arranged specifically for our corporate. One of the topics was negotiation. The trainer divided the group into pairs and gave them each a separate version of a problem. The pair had to negotiate to reach an equitable solution. My partner was a person much junior to me. At the outset, he took up the position that he would not budge an inch from his position. No amount of discussion could convince him to reconsider, and we did not reach any conclusion till the end of allocated time. It was a role play but in real life also, we enter negotiation with a fixed mind.
Our first impulse is to ‘win’ at all costs because we see negotiation as a battleground, not a discussion table. We believe that it is a ‘do and die’ situation. And that it is a matter of honor for us so we must win.
Within the Pharma industry, I can offer the following scenarios where negotiation is needed in various forms. We shall see what is happening and what should be done.
Pharma industry procures hundreds of materials; active ingredients, inactive ingredients, lab chemicals, consumables, production related other stuff, packaging materials and so on. Occasionally, various types of machinery and equipment are also procured. In addition, several types of services are also arranged. Procurement is done both from international suppliers and local suppliers.
Negotiation is done every time these days because prices change on daily basis. The standard parameters for negotiation are price per unit of the product, terms of payment and lead time to delivery. Shipment time is determined by the logistics company, not by the supplier. Our procurement managers’ entire focus is on unit price, and they fight very hard to reduce the price as much as they can. I have myself headed procurement for several years and know first-hand how our people operate. They go into negotiation with the fixated mind of getting some favor somehow so that they can claim victory.
First thing, the focus on unit price is inherently flawed. It is more like a ‘purchaser’ mentality. The purchaser focuses on the current purchase only. He does not consider the overall plan, the service, the continuity and the quality assurance for now and future. Procurer shall look at it as part of supply chain and shall consider all aspects related to it. He will consider this purchase and the future also. Procurement is a holistic activity, not a one-off thing.
I have seen major changes in suppliers’ behavior over time. They have become more assertive and less flexible. The price negotiation does not go far because they prefer to stick to declared prices. Payment terms are also getting stricter; gone are the days of 60 – 90 – 120 credit days, it is now LC – Letter of Credit at Sight, some even try to insist on advance payment. Thankfully, State Bank of Pakistan restricted advance payments by slapping a cap and applying conditions.
COVID further changed the supply chain worldwide. Due to lockdowns, isolations, and closures, almost all materials were in short supply. Based on simple demand-supply principle, prices went up. After a short while, it was impossible to determine whether the shortage was real or staged to get higher prices. So many times, procurement people struggled to get a quantity to keep the production running. This was the time when high level of negotiation skills was needed.
I recommend the following to the Pharma industry procurement people. I believe only the persuasive and pragmatic procurement managers shall survive respectably, others will fail sooner or later.
- Focus on value for money, not just unit price
- Consider long-term relation, not one-off
- Enter negotiation on equal ground. You still have client privilege, but it is very thin and blurry now.
- In many cases, the market has become ‘sellers’ market’. The seller has the upper hand, not the buyer, so you must learn to come to table with a disadvantage and leave on better terms.
- Build rapport and relation, don’t push for some advantage now at the cost of future. you will stay in business long term, and you cannot find new suppliers all the time.
- Negotiate with open mind. You may have to give some and take some, it is the real win-win, not taking all good things and leaving trash for them.
- Learn to accept sharing space and benefits
- Offer alternatives, build scenarios of mutual interest and benefits over longer term
- Build bridges which can be used by both, not just by yourself
- Negotiate to ensure both parties are satisfied with the end result.
To be Continued……
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