Published on March 7, 2014
Making the most out of your next negotiation. Analyze. Strategize. Realize.
Back to the basics • Before you can accurately project where you want to be in terms of the pricing contained within your new parcel carrier agreement, you have to definitively understand where you’re at. There’s no better place to glean this information than from your company’s unique shipping characteristics; think of it as your ‘package DNA’. – Your carrier can provide you with raw data that breaks down all of your company’s parcel shipments. The key to success lies within the proper segregation of this vital information, enabling you to ‘speak your carrier’s language’ with regard to market-appropriate rates for the services your company utilizes.
Cost justification • Let’s face it: The time and resources necessary to dive into your data can be extensive and expensive, especially if your internal resources are constrained by other initiatives. – Before you write off the exercise, it’s important to understand the amount of cost savings that typically hide within a company’s parcel supply chain. Companies that take the time to understand what drives their costs save an average of 18-20% more than those who don’t. This makes failing to perform a thorough parcel data analysis on the front end a far more expensive proposition in the long run.
Utilize your audit • Whether companies audit in-house or through a third party, they enjoy the fringe benefit of more manageable data in addition to parcel credit recovery. This 90-second video illustrates this and other benefits:
Strategic planning • If simply asking for what we wanted were an effective strategy, our children would have a lot. more. toys. Of course, even a 5-year-old will tell you it’s not that easy. Every negotiation is a delicate balance of give and take. Be realistic about what you want to accomplish and substantiate your request with the data to justify your business case. Focus on your strengths (cost drivers, demonstrated growth, enticing strategic initiatives, etc.) and position those to your carrier.
Manage your information • It’s important to be realistic; if your volume in certain shipping lanes is lagging, then your carrier will throw a wrench in its profitability by discounting those particular rates. This will, in turn, prevent them from making concessions that matter. This approach might make more sense, however, if, for example, your company is planning to roll out a new product or planning to expand into a new location that will pump volume into a new service level. In either instance, it’s important to focus on the buckets that will impact your bottom line and be willing concede in other, more inconsequential areas.
Focus on price • Both of the major parcel carriers have made names for themselves by delivering on their commitments with staggering efficiency. If you ship it, you can be more than 99% sure that it’s going to get where it’s supposed to be by the time it’s supposed to be there. A sliver lining within a market with limited genuine competition is that dependability remains relatively constant, regardless of which carrier you choose. This allows shippers to focus more heavily on the price they pay for services. Ignore the fluff, and get straight to the bottom line.
Read between the lines • A significant portion of parcel carriers’ profits come from accessorical charges like address corrections, delivery area and residential surcharges. As such, the terms of these surcharges are negotiable and should be addressed within the terms of your agreement. • Even if your carrier is offering a service-level discount that looks good on paper, it’s important to understand how minimums can impact the net effect of those discounts. The 2014 Zone 2, 1-pound minimum, for instance, is $6.24. Regardless of your discount, your rate will never fall below this amount. If you have a 50% discount on a $10.00 package, instead of paying $5.00, you’ll pay $6.24, leaving your actual discount (37.2%) 12.8% short of what you were expecting, and that can add up quickly.
Lock in your rates • You’ve spent all this time negotiating; make sure you don’t have to do it all over again a year from now. Though the terms of a typical agreement are three (3) years, there are often discounts within that agreement that may expire automatically after a shorter period of time has elapsed. Carefully read the language of your agreement to ensure that all the terms you negotiated will remain in place for the life of the agreement. Otherwise, you’ll be back to square one before you know it.
Monitor your performance • Nothing can impact the amount of money you pay for your carrier’s shipping services more than falling out of your ‘target tier’, the minimum revenue threshold that must be met in order for your company to achieve the negotiated discounts. Keep an eye on your data throughout the term of your agreement to make sure there unforeseen changes haven’t taken place. Significant fluctuations within your shipping characteristics can be costly… very costly.
Summary • Understand your ‘package DNA’. • Find an auditing process that does more than secure refunds. • Develop a strategy that focuses on your strengths. • Be realistic and willing to make concessions where necessary. • Focus on price! • Understand the impact of accessorials and minimums. • Lock in your discounts. • Continue to monitor your characteristics post-negotiation.
Stop Shipping Your Money Away! We Can Help! • Contract Negotiation – – 5-6 week negotiation period – • 22% avg. savings 3-4 hour time commitment Parcel Auditing – – web-based, non-intrusive – • 1-5% average savings no commitment or upfront fees Reporting & Optimization – 150+ canned reports – unlimited ad-hoc reports – customized, automatic delivery Contact Transportation Impact w: transportationimpact.com p: (252) 764-2885 e: email@example.com
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