Negotiation excellence for a distressed client
Achieve negotiation excellence using and innovative auction approach based on game theory
Our client is an iconic brand and a leader in the European battery market. With over 4.000 employees and a turnover of around 1 bn €, the traditional company produces accumulators and batteries for households all over Europe.
Consumer Goods
Objectives: procurement excellence program to avoid insolvency
The listed company found itself in a difficult financial situation. Increased material costs coupled with a drop in demand have forced it into a sandwich position. This was compounded by a difficult situation on the supplier markets. As a result, the company’s share value fell sharply and it was on the verge of insolvency. To prevent this, a comprehensive restructuring program was initiated. The focus was on consistent cost optimization. We tackled this by combining procurement levers and tools with spend analyses and scientific approaches.
Negotiation excellence approach: Deliver highest impact through process-driven negotiations
In implementing our approach to negotiation excellence, we embarked on a process-driven strategy aimed at delivering the highest impact. With an unprecedented client-in-distress situation at hand, we recognized the imperative for innovative approaches and tailored solutions to maximize savings and stabilize the company.
Central to our strategy were should costing analyses and spend analytics tools, which provided valuable insights into cost structures and procurement dynamics. However, our primary focus was on negotiation excellence, where we sought to revolutionize the way business was awarded.
Exemplary structure of a negotiation process, individually customized to the client’s situation
Our innovative approach centered around application of game theory as the foundation for process-driven auctions. This methodology enabled us to meticulously define multiple phases, each designed to exploit the full potential of the negotiation process. A key success factor was to customize the different phases based on the business situation.
Phase 1: RFQ Phase
In the initial phase, the Request for Quotation (RFQ) Phase, our objective was to qualify suppliers while fostering a competitive environment. Key features of this phase included:
- “First Price Sealed Bid”: suppliers submitted sealed bids, with the highest bidder winning the contract
- Binding RFQ quotes: quotes submitted during this phase were considered binding for subsequent phases, ensuring commitment from suppliers
- Transparent communication: we maintained transparency throughout the process to uphold fairness and encourage healthy competition
- Selection of suppliers: the top two ranked suppliers from Phase 1 were invited to proceed to Phase 2, while the third-ranked supplier advanced to Phase 3
Phase 2: Dutch Reverse Auction
Phase 2, the Dutch Reverse Auction, accounted for 75% of the business and yielded significant results, particularly in competitive markets. Key aspects included:
- Participation of qualified suppliers: only suppliers who successfully passed Phase 1 were eligible to participate in this auction
- Defined start and end prices: auctions commenced with a predetermined starting price, gradually decreasing until a supplier accepted the bid, marking the end of the auction
- Invitation to Phase 3: suppliers who were unsuccessful in Phase 2 were given the opportunity to compete in Phase 3
Phase 3: Japanese Auction
The final phase, the Japanese Auction, allocated 25% of the business and aimed to mitigate risks by establishing a dual sourcing strategy. Noteworthy features of this phase included:
- Limited information availability: suppliers were provided with limited information, adding an element of uncertainty and promoting competitive pricing
- Competition for small volume: qualified suppliers who did not secure contracts in earlier phases competed for smaller volumes of business
- Starting price strategy: the starting price for this auction was set slightly above the second-best offer, ensuring competitiveness while safeguarding against excessively low bids
By implementing this comprehensive approach to negotiation excellence, we not only achieved significant cost savings but also fostered a culture of innovation and efficiency within the procurement process.
Results:
- Out-performance of negotiations: Process-driven design boosted savings results
- Efficient and science-based design led to +4% savings compared to using conventional negotiation methods
- Savings could effectively be used and were transferred to cash flow cycle
- Standardized approach developed and implemented for future tenders
- Dual sourcing strategy successfully implemented
Get to know our experts
