According to Samuel Johnson, treating your adversary with respect serves no purpose. Many retailers appear to subscribe to this view when it comes to their dealings with suppliers, seemingly preferring to force through cost reductions or extended payment terms rather than taking a collaborative approach.
Nowhere is this adversarial behaviour more evident than at the annual round of negotiations. Those at the sharp end argue that such "negotiations" are ineffective, because they focus on value wasting rather than value creation, and are inefficient, being cumbersome and time-consuming. So could the answer be in avoiding negotiation altogether?
"In today's world where buyers and national account managers (NAMs) can be responsible for managing hundreds of millions of pounds of revenue, negotiation creates a short-term tit-for-tat approach that, on balance, benefits neither party," says Aidan Bocci, chief executive of Commercial Advantage Consulting.
At a time when efficiency and effectiveness are the mantras of every other part of the food business, it is surprising the negotiation process has remained unaffected. The cost of negotiation between trading partners in Europe is estimated at E4bn a year. The process involves 40,000 people and reaching an annual agreement takes many months each year.
Research in Italy by Bain & Company points to an annual 8% destruction of the total profit pool of a specific category. In other words, both manufacturers and retailers are experiencing a reduction in profits on the category surveyed. This is not an isolated example. Across Europe the industry is facing value destruction.
A survey of 300 food and drink leaders at last year's ECR Europe Conference showed that 91% were seeing more focus on price than ever before and nearly three-quarters were spending their time talking primarily about prices. Yet only 14% of shoppers across Europe identified price as the most important issue.
Speaking at the event, Enrico Toja, Johnson & Johnson's vice president, international, said that the negotiation process was "cumbersome and time-consuming".
He said the traditional confrontation between retailers and manufacturers needed to be replaced with a relationship based on innovation, investment and reduction of shelf cost "to grow the cake".
"No one is satisfied with the present negotiating model," said Toja. "We need to change it now."
Bocci agrees: "Negotiation is not good for building long-term strategic relationships. I would see the best NAMs and BAMs becoming better at avoiding negotiation altogether, rather than 'getting better at negotiation'. "
So how can you avoid negotiation? Commercial Advantage Consulting has put forward some tips below. n
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