Once the relationship is in place, the next step in the process is forming a Win-Win Agreement. In it I offer to give you what you want in exchange for your giving me what I want. What’s important to note here is that if the first two steps of the Win-Win process have been executed correctly; i.e., the planning has been done from a Win-Win perspective and a genuinely trusting relationship has been developed, then reaching an agreement is merely a matter of working out the details. Discussions are conducted in an open atmosphere and take on a character of, “I can do this if you can do that.”
Several years ago an article appeared in Nation’s Business whichtalked about how Sam Walton, then chairman of Wal-Mart stores, and his staff went about forming Win-Win Agreements with some of their suppliers. According to the article, the governor of Arkansas called Wal-Mart’s president and asked for help in saving Farris Fashions, a struggling shirt manufacturing company in eastern Arkansas. This company had made Van Heusen shirts for years, but Van Heusen had recently pulled its contract and gone overseas with it. It was the governor’s view that Farris Fashions had potential; it also had ninety employees looking for something to do.
Walton, his president, and several other executives mulled the situation over and decided to try to help this company. At the time, Wal-Mart was buying the printed flannel shirts it sold in its stores from manufacturers in the Far East. This appeared to be the type of product that Farris Fashions was capable of making. So a phone call was made to the president of Farris Fashions and a meeting was set up. The Wal-Mart executives stated that they would be happy to buy some of their printed flannel shirts from Farris, but Farris would have to be competitive in quality and price with the Far East.
After several such meetings, the Farris president said that his company could be competitive with the Far East, but it would require that he make a major investment in new equipment to make his operation more efficient. He would also need to get his suppliers to lower their prices on the materials he purchased, such as flannel, buttons, and lining. The Farris president went on to say that he could do all this if he could get a large-scale purchase commitment from Wal-Mart, if Wal-Mart would agree to pay its invoices immediately upon receipt of the goods, and if Wal-Mart could use its large-scale purchasing power to help secure a good price on the flannel used in the shirts.
After some discussion, the Wal-Mart executives decided that if Farris could be competitive with the Far East in quality and price, Wal-Mart would consider committing to buy 240,000 printed flannel shirts for the first order, see that Farris received payment within ten days of the receipt of the merchandise (instead of the standard thirty to ninety days), and investigate what they could do about the price of flannel.
With Wal-Mart’s commitment, the Farris president was able to go to his suppliers for buttons, linings, labels, and so forth to see if they could lower their prices, given this large volume. He didn’t approach his suppliers with an attitude of trying to chisel or demand a lower price from them. Rather, he approached them with an attitude of “What can you suppliers do to help me win this contract from Wal-Mart in such a way that each supplier would still make a fair return for his effort.” Furthermore, he told them that if their cooperative effort was successful and Farris did win the contract, those suppliers who helped would be guaranteed the business. This, in turn, motivated Farris’s suppliers to look for creative ways of lowering their prices without endangering their product quality or profit margin. For example, one supplier said he had just run into a bargain and would be happy to pass some of these savings on to Farris in order to help them win the contract.
Armed with these lower material prices, it was time for another meeting with Wal-Mart. At the meeting it was learned that Wal-Mart had been able to secure a very good price for flannel from a source in Asia and that Wal-Mart itself would buy the flannel for Farris. With this final piece of information, Farris was able to put together a price for these shirts that was more than competitive with the Far East. The result: Farris was awarded the contract.
Four years later, Farris had supplied 1.5million garments (mostly men’s and boy’s shirts) to Wal-Mart. Farris had installed more than a million dollars’ worth of new equipment and had grown from 90 to 325 employees.
On the other hand, if the planning has been one-sided and the relationship is nonexistent or antagonistic, then attempting to reach an agreement becomes a free-for-all.
A good example of such a free-for-all occurred a number of years ago when the National Football League Player’s Association was trying to negotiate an acceptable labor agreement with the owners of the NFL teams. This was a classic case of how not to negotiate. First of all, both parties to the negotiation planned from a one-sided perspective. Each knew what it wanted from the negotiation, but neither was the least bit concerned with what the other party wanted. Second, the players resented the owners because the owners had lied to them on numerous occasions. On the other side, the owners resented the players for trying to exert more and more control over the game itself as well as the revenue stream associated with professional football.
The owners felt that control over these aspects of the game rightfully belonged to them. These mutual feelings of resentment were dramatically intensified by the media because of their eagerness to hype every rumor and embellish every off-the-cuff comment.
To make matters worse, several weeks into the regular season the players decided to go on strike, calculating that the lost revenue would force the owners to be more accommodating to the wants and needs of the players. The owners countered by hiring non-union players and playing the games anyway, sending a clear message to the union players that the game of professional football could get along without them.
To say that the relationship between these two parties was antagonistic would have been an understatement. It’s almost absurd to think that these two parties would even try to hammer out an acceptable agreement under such circumstances, but try they did—and they failed miserably. The three weeks or so of the strike cost the players and owners collectively $205 million dollars and not one single thing was accomplished!
Although this situation was an extreme case, it does point out some of the problems you can encounter when you try to reach agreements without having done your planning from a Win-Win perspective, and without having established a solid relationship of trust.
