The Negotiation Book: Your Definitive Guide To Successful Negotiating

7.7. EMPOWERED TO DO THE WRONG THINGS?

Some retailers who have set objectives for their product buyers based on gross margin growth carry this same risk. Gross margin is calculated before many of the costs associated with receiving the product have been taken into account.

Imagine you are a retail buyer. Your objective across the category of products you are responsible for is to increase your average gross margin from 37% to 38.5% this year. Now imagine the temptation to offer those things to your suppliers which do not reflect on your motivation to grow gross margin, including logistics arrangements, forward orders, and even special promotions in your quest to improve your gross margin. You may actually sell less product, taking less money and making less profit, but as long as your gross margin goes up you will have achieved your objective. Narrow individual objectives drive behaviour and if you are empowered to operate across all of the necessary terms and yet are not measured on the total performance, the decisions you take will reflect those things you are measured on rather than results that can be detrimental to your employer.

Many buyers of products from around the world will use agents to source goods or materials. The agents will identify suppliers and negotiate with them on your brief. But how do you know they are getting the best deal on your behalf, or that you are even getting the best deal from them? Empowering agents on your behalf requires careful management ...