Negotiation Variables and Objectives

What is it?

Negotiation variables are the content issues for a negotiation which determine its scope and focus. Some negotiations may only require focus on one issue, such as a price reduction or a delivery issue. However, most negotiations will involve a number of variables, particularly in the case of new procurements or new suppliers. The negotiation team should identify what these variables are.

Typical negotiation variables for medical supplies and services:

The procurement of medical equipment should cover the whole life cycle of the item, not just the purchase price. Typical negotiation variables for medical equipment (other than price) are:

• Terms and conditions of contracts
• Transport, packaging, Incoterms
• Installation, testing, user training
• Operating manuals, on-line support
• Service intervals, fuel consumption
• Upgrades to other equipment
• Software licences
• Currency exchange and bank charges
• Reliability and performance guarantees
• Disposal and environmental considerations

Negotiation variables have different absolute values and each party will value them differently. These are the ‘bargaining counters’ which will be traded or exchanged during the moving stage of the negotiation. It is therefore important for the negotiation team to identify the variables, assign a value to them, and anticipate how the other party may value them.

Once the variables have been identified, the team need to establish a range of negotiation objectives for each one. These may be expressed in the form of the MIL acronym:

• MUST = minimum requirement or least acceptable outcome
• INTEND = realistic outcome given the strengths and weaknesses of the two parties
• LIKE = optimistic target or most desirable outcome

This bargaining mix of variables and objectives will enable the negotiating team to establish its zone of agreement. This clarifies what we are trying to achieve, the concessions we can make, what we would like to see in return, the likely outcome, and our walk-away position. As long as there is an overlap between the two parties’ zones, there is scope for agreement.

The walk-away position is when we do not achieve our minimum requirement (MUST). However, in order to walk away, we must have an alternative course of action, such as a substitute product or supplier. This is the concept of BATNA (best alternative to a negotiated agreement). A BATNA gives power and protection to the negotiator and clarifies the ‘bottom line’. However, the BATNA must not be set too high or too low and it must be a credible alternative to be effective.

What does it look like?

How does it work in practice?

Miga Solutions is an information services company that helps leading hospitals drive savings and operational efficiencies in their medical equipment spending. The CEO of the organisation, Peter Robson, provides advice on how hospitals can achieve more effective negotiation of medical equipment:[1]

1) Create (credible) competition

A credible competitor must provide a product or service that meets established technical, financial and other requirements that your clinical team would actually consider using. When selecting a competitor, be certain to pick one that offers comparable clinical capabilities and market acceptance that will be credible in the eyes of your clinical team, as well as competing suppliers. Clinicians often have strong preferences and may voice their opinion in support of a single product from a specific supplier. Without genuine competition from multiple suppliers, it is hard to gain any meaningful negotiation leverage that can secure the preferred product at the truly best price.

Example: A 600-bed level 1 trauma centre was renewing a service contract covering 51 imaging systems from multiple suppliers. The hospital was planning to renew coverage with its existing service provider, but reconsidered after market data showed it could save a substantial amount of money. By introducing another competitive service provider into the process, the hospital was able to reset the bar for what it was willing to pay, and negotiated annual savings of $220,000 or $1.1 million over a five-year contract.

2) Communicate early and often

The negotiation process starts internally and well before you actually engage with the supplier to finalise the best offer. Set the stage for an effective, productive and efficient negotiation by making sure all key hospital stakeholders are on board before you start negotiating. Make your process and anticipated timing for final decisions completely transparent, both internally and with your suppliers. Having unplanned questions or issues arise at the last minute can frustrate everyone involved and derail the momentum of the negotiation. Having an aligned and consistent message is a key consideration in medical equipment negotiations.

Example: A community health system was implementing a system-wide patient monitor upgrade and some common pitfalls had delayed the hospital’s final decision. The incumbent supplier assumed they had won the business, but was not aware of budget issues that were impacting project approval. The hospital was transparent with the supplier about the budget challenges, and enlisted their help to carve out additional savings that allowed them to fit the full scope of the project into a reduced budget and secure the approval needed to move forward. Communicating key information to the supplier led to additional, incremental savings of $1.1 million or 19.7% of what the buyer had planned to spend.

3) Do not fear commitment

As you close in on the final steps in the negotiations, do not overlook what may be the most powerful weapon for extracting final concessions: the actual purchase order (PO). Many hospitals fail to realise that the PO, which for them is a routine formality, can be like gold for the supplier. The PO is the prize that cements the supplier’s ‘win’ and allows it to register the sale. Use the promise to deliver a PO promptly (and only if you really can do so) as a final ‘carrot’ to dangle in front of the supplier to achieve any final price discounts or incentives you are requesting. Too many hospitals get to the end of a negotiation and then cannot deliver the PO without weeks of delay. This can leave suppliers anxious and wondering if the deal is truly solid. It may also cast doubt on whether you have the authority to close the deal.

Example: A community hospital was expanding its facility to add more private rooms with a project budget of more than $100 million. Faced with a hard deadline of an official grand opening and ribbon-cutting ceremony, the hospital experienced serious supply chain system/IT issues that delayed the procurement process by weeks. Key equipment suppliers were becoming sceptical and, anticipating ongoing delays, had not made provisions to ship the needed equipment. Only by dangling the promise of a valid PO was the hospital able to both negotiate a final $3 million in additional savings and obtain agreement from its suppliers to expedite delivery to meet project deadlines.

It should be noted that negotiation requires great skill and technique. You should undertake appropriate training and take advice from experts within your organisation.

[1] https://www.beckershospitalreview.com/finance/how-more-effective-capital-medical-equipment-negotiations-can-boost-your-hospital-s-bottom-line.html; 14 June 2018