A Transportation Firm Re-Negotiates with its Biggest Client

Business Issue

For the last thirty years, a Fortune 500 manufacturer has turned to the same transportation firm to be its largest truckload provider. The transportation firm assigned a new global general manager to the manufacturer’s account five years ago. The transportation company’s global GM serves as a “relationship manager”, handling customer service needs, order fulfillment, and re-negotiation of contracts. Companies normally re-negotiate transportation contracts about every six months based on market intelligence that indicates how fuel prices, driver salaries, and market averages are changing. However, the recent recession has made these contract re-negotiations much tenser, as the margin of profit has grown thinner.

The manufacturer’s VP of Supply Chain had just taken over his company’s transportation negotiations. He was not properly armed to have these conversations, but he wanted to reach a deal. If he were unable to, the corporate executives at the manufacturer would have to take over transportation decisions. The VP tried to lock down a multi-year agreement to help keep costs down during the recession, but this was not economically feasible for the transportation firm.  The transportation firm contacted Accordence when this negotiation started heading towards a dangerous “take-it-or-leave-it” scenario.

Process

The transportation firm had hired negotiation consultants before, but they hired Accordence for a new approach that was externally focused and that would bring their employees to a higher skill set. Accordence customized their 2-day negotiation program to help the transportation firm understand the other side’s interests and understand their best alternative to a non-agreement. This helped them understand the tight bind that the manufacturer’s VP was in – raw materials costs were up, but the manufacturer was trying to not raise prices through the current fiscal year. The transportation firm went through a number of role-plays to prepare themselves for live negotiations. After the two-day course, the transportation firm retained Accordence as a consultant for the negotiation.

Following the two-day course, the transportation firm’s global general manager planned to re-open negotiations with the VP of the Supply Chain. The global GM knew he could not give the manufacturer an 18-month transportation deal at a low point in the market. However, if they did not reach a deal, his transportation company would have to start taking trucks away from the manufacturer. This would be a lose-lose: the transportation company would lose profit, the manufacturer’s goods wouldn’t ship and they would lose trust and reliability, and both would lose a 30-year relationship.

The global GM met with his Accordence consultant and they discussed the transportation firm’s leverage. They discovered that their CEO had an amiable relationship with the VP. They decided to fly their CEO down to the manufacturer’s headquarters that week to have a non-transactional, straightforward discussion with the VP. The CEO did not try to negotiate, but rather stressed his dedication to their relationship. He made it very clear that their business was a priority of his, so much so that he was willing to fly across the country on short notice to help shore up the relationship.

Result

After talking with the transportation CEO and realizing how valuable this partnership was, the manufacturer VP returned to his rate analysts with a renewed interest in making the numbers work. He returned with a more reasonable proposal that reflected his interest in keeping his long-running relationship with the transportation provider. The global GM’s work with Accordence had been a success. The knowledge that the transportation firm had gained in the Design phase of their 4-D program was influential down the stretch in convincing the manufacturer’s executives of the necessity of their relationship. Also, their understanding of the manufacturer’s best alternative to a non-agreement revealed that it would have been incredibly costly for the manufacturer to walk away and find another transportation provider. The two firms still work together today. Accordence has served as a consultant in negotiations for the last three years, and is brought into each new negotiation to help determine how the manufacturer’s underlying interests and alternatives may have changed. The transportation firm values the consistent business of the manufacturer, and the manufacturer values the reliability of the transportation firm.

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