Negotiate Like a Pro

How strong is my position in the negotiation? What impact will it have on my contract? What does the contract have to include? A toolbox is now available to help Sales and Marketing answer questions like these.

Contracts with customers should be watertight and at the same time as favorable for LANXESS as possible – to achieve these two core objectives, a rather sophisticated toolbox is now available. It was developed by an interdisciplinary team within the Commercial Excellence Stream. And the fact that the issue is being tackled head-on is clear from the way Stefan Marquart, DEV GF and head of the Contract Management project, formulates the toolbox’s objectives: “The goal of our toolbox is to professionalize the way we approach contracts and as a result, maximize the commercial value of customer contracts.” And, of course, the toolbox shouldn’t only be used to ensure that new contracts are clear and unambiguous and more advantageous for LANXESS, but also for contract extensions or amendments. “There’s usually some room for improvement in this case as well,” says team member Maike Krewet, LEX GF. 

For this ambitious approach, the team, together with colleagues from various BUs, analyzed the contents of LANXESS’s largest and most important customer contracts. From this, they compiled a list of best practices. In addition, they addressed frequently asked questions about the meaning and purpose of individual contract components and integrated them into the toolbox as little “nuggets of knowledge.”

Anyone who uses the toolbox now starts by first analyzing their own negotiating position: is it weak, balanced, or strong? Answering this question involves considering factors such as the supply and demand situation and the customer’s price sensitivity. Once one’s own negotiating strength or weakness is clear, the toolbox helps draft a concrete proposal that includes the most important contract elements. For example, if your negotiating position is weak, a short contract term of one year is recommended as ideal. This allows you to renegotiate and improve the terms in the coming year from what will hopefully be a better negotiating position. 

The toolbox also acts as a checklist that allows you to structure and optimize the individual elements of a customer contract step by step. These include pricing and price adjustment mechanisms, minimum purchase quantities and the consequences of noncompliance, ordering modalities, contract terms, liability provisions, and much more. To make coordinating the wording of the contract between the business units and the Legal Department more efficient, the elements of the toolbox and the options for selecting them were closely aligned with the revised German or European customer contract template. “The toolbox and the contract template now mesh together perfectly,” says Julian Korb from the perspective of the Legal Department. The toolbox can now also be used for contracts in the United States. APAC, India, and Brazil will soon follow. 
 
The toolbox is already in use, and the introductory events for the BU, Sales, and Marketing heads have already taken place. More in-depth training for employees in sales and marketing roles will follow by the end of the year. After that, employees will be required to use the toolbox when entering into new contracts as well as when renewing or amending existing ones. If questions arise during day-to-day use, our colleagues from the Legal Department are happy to provide advice and support.

The project team is also supporting the efforts of the Legal Department to implement contract management software. The aim is for it to reflect the contents of the toolbox and then, in most cases, to automatically generate a draft contract. In addition to saving time, such software would also help minimize financial risks. How? With the help of AI. It will automatically verify whether the customer is complying with the contract terms and draw attention to impending losses of revenue in a timely manner. This and other features are expected to improve EBIT by at least 20 million euros over the course of several years.

But despite all the standardization and the upcoming use of highly intelligent software, one thing remains clear: we always enter into contracts individually with each customer. The sales representatives in the BUs know just how delicate their specific situation is, they know their counterpart, and they are in the best position to assess what is possible in which case and what might be worthwhile for the BU despite all the risks. “In the end, the employee and their BU will make the final decision,” Marquart points out. After all, there are always influencing factors that lie beyond the scope of a model or checklist. “The most important thing is that we make our decisions conscientiously.”

Quote:

Best Practice with the new Toolbox

“I think the tool is extremely well done. It allows us to quickly and efficiently check whether all the relevant provisions are included in a draft contract. In addition, the toolbox supports structured and efficient collaboration between the BU and LEX – both here in Germany and with our US colleagues. In negotiations, the focus is always on two questions: What do I want? And what can I actually get? Being clear about your own negotiating position is very important. The toolbox can also help in this regard.“

Anna Schmidtlein-Hellmann,Global Marketing Director, Chlorobenzenes & Derivatives, BU AII.