In a matter of a week, a virus that loomed at the periphery of our consciousness rapidly pushed its way to the center of our daily lives. Businesses were thrust into a maelstrom of uncertainty, forcing them to reevaluate their current strategic plans. Almost immediately, a clear pattern emerged: retract and protect. Companies went to their economic downturn failsafe: cutting anything they deemed even remotely non-essential, from travel and discretionary spend to — you guessed it — training.
While taking such a position is certainly understandable, it’s knee-jerk in nature. A broader, more comprehensive analysis of the situation reveals that pulling the ripcord actually makes companies more susceptible to the challenges posed by volatility, because this is not a typical economic downturn. The market has shifted, and the way companies need to work has changed, yet businesses must continue to survive. At the core of all of this chaos is the need to ensure that employees are equipped to handle such tectonic changes.
For procurement, the biggest of these challenges is equipping buyers with the skills to work in what has become, as a matter of sheer necessity, a virtual world. Leaders must lean into their most vital people, providing them with the tools to efficiently and effectively navigate their way through a negotiation minefield.
At this juncture, the margin for error is narrow. Changes to contracts can have lasting impacts not just on supplier relationships but also on companies’ bottom lines. Facing myriad disruptions, procurement will have to grapple with any of the following thorny situations:
Assume That Every Contract Is at Risk
The current circumstances have far-reaching impacts, and many companies are scrambling to restructure existing contracts to protect themselves. As such, buyers will be faced with change requests, contract renegotiations and a litany of other restructuring mechanisms.
Timelines Will Be Compromised
Given supply chain disruptions — inability to acquire goods and materials, challenges related to timely delivery, and concerns around staffing production labor — current execution timelines will be called into question, and buyers will need to deal with the ripple effects throughout the organization.
Managing the Long Term in the Near Term
As the beleaguered look for relief, there will be a temptation to take full advantage of the situation. However, when things return to normal and the power equalizes, those same beleaguered parties will come back to haunt future deals as they look to regain what they lost. Restrained and strategic negotiators will realize the greatest benefit.
Forecasts Are Even More Unreliable
Modeling future performance based on historical data produces an unreliable forecast during times of crisis. It inhibits our ability to use the usual variable contract stipulations, like volume-based incentives, certain service-level agreements or other performance guarantees.
Emotions Will Be High
During times of crisis, much of the conflict that buyers deal with is emotionally charged. These emotions can be due to anything from the stress of having to renegotiate a deal to the inevitable pressures of outside forces exerting themselves into relationships. These emotions can trigger more competitive situations and make negotiations even more difficult to navigate.
These challenges are difficult for even the most expert negotiators and buyers. The difficulty is amplified when everyone is forced to work in a new medium (online). The skills required to excel during this time are fundamentally different than they are under normal conditions. To succeed in a virtual world, skilled negotiators will need to dial up their curiosity; find ways to be more creative; recognize when to advance positions and when to hold back; and extend empathy in order to understand the needs, constraints and priorities of the other party. In short, they have to hone their craft in ways they’ve never done before.