Negotiations between retailers and solutions providers is often a tricky dance. Many times the subject-matter experts, such as asset protection, operations, or information technology, begin the process by engaging with vendors they know who provide the type of solution they need. But most retailers also engage procurement professionals to negotiate the final contracts who may place reducing costs above achieving the right solution for a fair price.
We asked three individuals with significant background in the retailer-vendor negotiation process to provide their insights into achieving the right balance for both parties. Robert Kleinman has been associated with AFA Protective Systems his entire career. Thomas Nimblett has twenty years’ experience in sourcing and procurement of technology for companies such as Lowe’s and Home Depot. Prior to becoming president of the Loss Prevention Foundation, Terry Sullivan, LPC, spent fifteen years in management with Lowe’s loss prevention department, the last three as director of LP operations where he was responsible for the department’s capital expenditures.
What are your primary objectives when negotiating a contract for a retailer and a solution provider?
KLEINMAN: We always hope to end up with a contract that reflects a true partnership—one where the solution provider has the ability to make a reasonable profit in return for the retailer receiving the services they desire at a fair price and at a high level of service. When we can achieve all these metrics, we know both parties are satisfied, and the relationship can and will grow.
NIMBLETT: Objectives will vary based on the business area’s objectives and the company’s sourcing/procurement objectives. Many procurement groups are focused on cost savings, and many business areas will have an objective of functionality. While it is possible to bring both objectives together, the challenge comes when neither group understands what the cost baseline is and how functionality is tied to this baseline. What should be the cost and what functionality does the business really need immediately versus long term is a tough equation to solve.
The objectives are also impacted by what it is being purchased. Many times the combination of assets and services makes the overall negotiation a complex one, especially when the assets are purchased from one company and services another. If assets are the focus, per asset cost will be critical along with the need for asset protection, such as warranties, returns, and defects. If services are being completed by the asset seller, the expectation is the subject-matter experts should be able to show a complete installation and maintenance life cycle without making the purchase difficult.
My primary objectives always target a flexible and thought-provoking supplier when bringing the details above together. If the solution is simplified and the supplier is willing to work with the customer, then the objectives of cost and functionality will certainly be achieved.
SULLIVAN: At the end of the day, you will get what you pay for. As a retailer, you should always look for the win-win with the solution provider partner. You have to look at all relationships as partnerships. The primary focus has to be the people you serve. As the director of loss prevention operations for Lowe’s, I was serving the stores all day every day. Any pain point they would have would ultimately become my pain point.
What are some of the missteps you have seen from your peers when negotiating a contract?
NIMBLETT: The biggest misstep is always the planning of the negotiation and balancing the amount of time needed. Many peers fall into a trap of thinking the technology and the services are similar to other negotiations recently done. Many do not realize things are changing quickly, and solutions that were popular last year are not the same solutions this year. Planning to review the changes, understand the changes, and having a way to benchmark the details is critical to setting up the timelines. When the timing is squeezed and the thought is based on “end of year” or “end of quarter” deals, the negotiation will be a tough one because it becomes all about cost.
A negotiation is a planned engagement; it takes time to do things right, and both sides need to be honest with the outcomes. If basic protections for both companies are unattainable from the beginning, the negotiations quickly derail, and frustration will be introduced. This misstep causes delays in time, and many times, ultimatums that neither party wants are positioned and throw the planned negotiation timeline out.
SULLIVAN: When bringing in new products or solutions, it is a major misstep not taking the time to meet with several solution providers to find the best product at the best price. Sometimes people take the easy route and see something they like and don’t take the time to see what similar solutions are being offered. When you are spending your company’s capital, you must treat it like you are spending your own money.
KLEINMAN: Sometimes a peer provider is so consumed with securing a new foothold, they will compromise commonly accepted industry standards by loss leader price cutting or exposing themselves to severe potential loss liability by virtue of agreeing to contract terms that reputable providers would normally never consider. Not only does this result in a one-sided deal against the provider, but also it can permanently jeopardize how the retailer will forever view that provider and maybe even the entire industry.
“We always hope to end up with a contract that reflects a true
partnership—one where the solution provider has the ability to make a reasonable profit in return
for the retailer receiving the services they desire at a fair price and at a high level of service.”
– Robert Kleinman, AFA Protective Systems
What are some of the missteps you have seen from companies submitting RFPs that are clear signs to stay away from?
SULLIVAN: The most common is when a vendor’s price is drastically low and unattainable to provide the service requested in the RFP. In that case, they likely just want your business and will not be able to deliver.
At Lowe’s, if an RFP came with a major business impact, such as fire, burglary, CCTV, or EAS, we could override a procurement recommendation if we could show there was a business case that could cause an impact to the business beyond the potential savings of another solution provider. I am not sure that option exists in a lot of companies.
KLEINMAN: Some companies mandate that a potential provider agree to their formal terms and conditions verbatim, regardless of the industry the provider is in. Certain industries and their providers cannot realistically provide the quality of service and associated pricing desired by the retailer when the retailer is not flexible with other terms in such instances.
The perfect example is the allocation of risk with respect to liability emanating from the service. When a provider comes across a retailer that wants the highest level of service at a competitive price, but also expects that provider to, in effect, be its insurer, it shows there can never be a true partnership, and the reputable provider should stay away.
NIMBLETT: My favorite is the fluff. Time is always of the essence, but reading through fluff can really sidetrack the reader from the core message being delivered. Many times too much information about nothing is not what the reader is looking for. This doesn’t mean you answer with, “Will provide during vendor meeting.” You need to clarify and simplify the message. If there is fluff and a request to meet to discuss further, then the supplier did not put in the time to respond and likely will not put time into the next tasks required.
Also, vendors must show what makes you different from your competition in the written response. If you do not know who your competition is, then the reader will figure it out for you and build out a comparison table. Guide the reader to your solution. If the details are vague and the response is all about the next meeting, the reader will be left trying to determine the next step for you. Knowing who your reader is, a dedicated professional skilled in the solutions or a corporate sourcing professional who sees one of these every few years will make a big decision on next step.
“The biggest misstep is always the planning of the negotiation and balancing the amount of time
needed. Many peers fall into a trap of thinking the technology and the services are similar to other
negotiations recently done. Many do not realize things are changing quickly, and solutions that were
popular last year are not the same solutions this year.”
– Thomas Nimblett, TIAA
From the procurement perspective, my favorite responses are ones that help me understand the solution against the competition and show how the price is tied to the benefit.
What are some final thoughts on the negotiation process and partnering with providers?
KLEINMAN: Retailers, especially the larger ones, should be cognizant that procurement decisions made in a vacuum strictly based on price are not necessarily in their company’s best interest. Retailers need to consider not only price but also a provider’s reputation and past experience, including longevity, service capability, and responsiveness. In the long run, spending a little more for the “better” quality provider up front will in all likelihood end up being the most cost-effective choice for any retailer, since that extra investment will be rewarded many times over with resulting savings from better service. That in turn saves their operations department’s future expenditures and makes them more efficient. In other words, do not be penny wise and pound foolish.
“It is very important to take care of solutions partners who have taken care of your company. If
they have proven over time to deliver great products or services at a competitive price, I found that
rewarding these partners with longer-term contracts was a great best business practice.”
– Terry Sullivan, LPC, Loss Prevention Foundation
NIMBLETT: Retailers should not be afraid to walk away from a negotiation. There are numerous warning signs—from the supplier’s unwillingness to share risk in the environment to cost being unclear and setup as a constant revenue stream. When negotiations start by focusing only on cost and there is no plan to truly educate and provide an understanding of the solution, the negotiation planning piece is lost, and a good sourcing/procurement professional should walk away. Given the need for a solution is still required, if the retailer has the correct partnerships in place, the procurement professional should be able to identify another provider who likely will be willing to come back to the table with a concession.
SULLIVAN: It is very important to take care of solutions partners who have taken care of your company. If they have proven over time to deliver great products or services at a competitive price, I found that rewarding these partners with longer-term contracts was a great best business practice. It shows your commitment to them as a true partner and provides a true win for the stores because you’ve minimized business interruption while maintaining a valuable service to the stores.