Imagine you have 6 vendors for a particular service with the 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 a quotation. Once quotes are in, you speak to the 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 the best return on investments against simple interest. The 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 force 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. The beauty of this process is how each vendor’s action triggers multiple ones 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 reduce 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 are directly proportional to the 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.com
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.Schedule Free Product Consultation