Negotiating for Value - lessons from the medical device industry

Alan Smith, negotiations specialist and director of Scotwork International, shares seven lessons derived from his experience working with clients in the medical device industry.

Negotiation is far more than getting the best price. Many procurement specialists, especially 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, 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.

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.

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. 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 where you could be hesitant to ask for something and merely hope the supplier offers more than what's requested. 

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.

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.

Negotiate more favourable terms

The total cost of ownership approach provides you and the supplier with more flexibility in negotiating terms and fees. For example, if the length of the service contract for the blood analysis machine is more important to you, then the supplier can offer higher value — helping its overall standing and helping you get what you want.

Overcome suppliers who 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. You may have already gotten the best price on a particular stent, screw, or other components. Still, they may have manuals, training, online tutorials, or onsite help that could add value to your physicians, clinicians or others in the lab that may be worth more than another price cut. 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.