If reducing freight cost is your KRA, then compounded negotiation is for you
Imagine you have 6 vendors for a particular service with same offering, but you can buy from only one. How do you ensure that you get the best price?
You mostly do simple negotiation.
In simple negotiation you call or email each vendor and ask for quotation. Once quotes are in, you speak to top few vendors to negotiate and then you finalize.
Most buyers believe that they are the best negotiators. But that's before they find out about compounded negotiations.
What is Compounded Negotiation?
Think about how compounding works to give you best return on investments against simple interest. Underlying idea is to make each unit of value chain work all the time. In case of money, it's the units of time that forces growth on each value block which is money.
This kind of compounding is what a reverse auction process forces on each participant all along the bidding process. Beauty of this process is how each vendor's action triggers multiple one on one competition that is self-perpetuating. The entire race to quote lower ends only when the auction ends. Best compounded negotiations are done in a computer assisted environment, since such systems are free from fatigue and bias that humans are prone to.
In GoComet's reverse auction process for instance, each vendor submits their quote on the internet based platform. Then they are shown their own quote rank (L1, L2, L3 etc). Making use of the psychology of the vendors, they are encouraged to reduce their quotes to win the business. Hence L3, L4, L2 try to come to L1, if L1 becomes L2, they again try to come to L1. This is continued until bidding time is over. This process ensures that each vendor is transparently competing with every other vendor. Any vendors who reduces the quote potentially affects all the other vendors. Hence there are nC2 negotiations happening to win the business, where n is the number of participating vendors. You are here able to achieve a higher order of magnitude (n^2) negotiations as compared to the old method where the savings is directly proportional to number of vendors spoken to by a human negotiator who rarely talks twice to any vendor.
Humans are good at relationship building, using reverse auction for negotiations allows them greater opportunity to leverage their strength in putting a robust vendor management model in place.
Next time you share RFQ, try compounded negotiations. Feel free to use gocomet.in
GoComet is the world’s best platform to make freight procurement efficient and fast. Our enterprise SaaS product is used by manufacturing companies to drive sharp reverse auctions bringing out the best possible end to end rates for international shipments.