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How can you negotiate and manage contracts with suppliers and vendors in the airline industry?

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Negotiating and managing contracts with suppliers and vendors is a crucial skill for airline managers. Suppliers and vendors provide essential goods and services for airlines, such as fuel, catering, maintenance, ground handling, and airport fees. However, these costs can also account for a large portion of the airline's operating expenses and affect its profitability and competitiveness. Therefore, airline managers need to know how to negotiate and manage contracts that deliver value, quality, and flexibility for their operations. In this article, we will explore some tips and best practices for achieving this goal.

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Mohammad Z.

Network Cargo | Management Studies from Oxford Brookes University, England and Cargo Marketing from IATA, Geneva |…

1 Know your needs and goals

Before entering any negotiation or contract management process, you need to have a clear understanding of your needs and goals. What are the main drivers of your demand for the supplier's or vendor's product or service? How does it fit into your overall business strategy and objectives? How much are you willing to pay and for how long? What are the key performance indicators (KPIs) and service level agreements (SLAs) that you expect from the supplier or vendor? How will you measure and monitor them? Having a clear vision of your needs and goals will help you communicate them effectively and align them with the supplier's or vendor's interests.

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Mohammad Z.

Network Cargo | Management Studies from Oxford Brookes University, England and Cargo Marketing from IATA, Geneva | TheCargoBlog.com
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One thing I've found helpful is doing a sort of "pre-negotiation" within your own team. Yeah, I know it sounds a bit like rehearsing, but bear with me. Gather key players in a room, get a whiteboard, and jot down everyone's thoughts on what the priorities should be. You'd be surprised how one department might prioritize fast delivery while another is hell-bent on quality. Aligning internal expectations first makes the actual negotiation smoother, as you're now armed with a collective vision that you can articulate clearly. This strategy helps in achieving a more unified, effective negotiation and subsequent relationship with vendors.

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2 Do your research and analysis

Another important step before negotiating or managing contracts is to do your research and analysis. You need to gather relevant information and data about the market, the supplier or vendor, and the product or service. For example, you need to know the market trends and dynamics, the competitive landscape, the price benchmarks, and the potential risks and opportunities. You also need to know the supplier's or vendor's strengths, weaknesses, opportunities, and threats, as well as their reputation, track record, and capabilities. You also need to know the features, benefits, and drawbacks of the product or service, as well as the alternatives and substitutes. Doing your research and analysis will help you identify your bargaining power, your leverage points, and your value proposition.

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Mohammad Z.

Network Cargo | Management Studies from Oxford Brookes University, England and Cargo Marketing from IATA, Geneva | TheCargoBlog.com
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An example that drives home the point of doing thorough research is when a company needs to dig deeper into a supplier's track record. Everything looked good on paper, but a simple search would have shown several customer complaints about delayed shipments. The company faced operational hiccups because of delays from this supplier. Conversely, a competitor who did their homework picked a supplier with a stellar track record. The difference was night and day; one was firefighting delays, while the other was focused on growth. What is the moral of the story? Research isn't just a formality; it's your safeguard against potential headaches.

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3 Negotiate with confidence and collaboration

Once you have prepared your needs, goals, and information, you are ready to negotiate with the supplier or vendor. The key to successful negotiation is to negotiate with confidence and collaboration. You need to be confident in your position and your value, but also willing to listen and understand the supplier's or vendor's perspective and needs. You need to be assertive but respectful, firm but flexible, and realistic but ambitious. You need to aim for a win-win outcome that creates value for both parties and fosters a long-term relationship. To achieve this, you need to use effective communication skills, such as asking open-ended questions, making clear and concise statements, using positive and constructive language, and giving and receiving feedback.

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Mohammad Z.

Network Cargo | Management Studies from Oxford Brookes University, England and Cargo Marketing from IATA, Geneva | TheCargoBlog.com
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One thing I've found helpful when negotiating is using "What if" scenarios. You map out hypothetical situations that allow both parties to explore options without committing. For instance, "What if we commit to a larger volume in exchange for a 5% discount?" This opens up dialogue and often leads to a solution that wasn't initially on the table. It allows both sides to test the waters and see where there might be flexibility. Plus, it's less confrontational and adds a collaborative spirit to the negotiations, increasing the chances of a win-win outcome for the long haul.

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4 Manage contracts with transparency and accountability

After negotiating and signing a contract with a supplier or vendor, you need to manage it with transparency and accountability. You need to ensure that both parties comply with the terms and conditions of the contract, and that they deliver on their promises and expectations. You need to establish regular communication channels, reporting mechanisms, and feedback loops to monitor the performance and quality of the product or service, as well as to address any issues or changes that may arise. You also need to review and evaluate the contract periodically, and make adjustments or renegotiations if necessary. Managing contracts with transparency and accountability will help you maintain a healthy and productive relationship with the supplier or vendor, and achieve your operational and strategic goals.

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Mohammad Z.

Network Cargo | Management Studies from Oxford Brookes University, England and Cargo Marketing from IATA, Geneva | TheCargoBlog.com
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An example illustrating the importance of transparency and accountability involves a monthly scorecard system. In this system, the airline and the supplier evaluate key metrics and objectives to ensure they're meeting the contract terms. These could range from on-time delivery rates to quality checks. This scorecard is shared and discussed monthly meetings where both parties can highlight successes or delve into issues. This opens the door for timely corrective actions and reaffirms the commitment to shared goals. It's a proactive approach that keeps everyone accountable and in the loop, ultimately fostering a healthier long-term relationship.

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5 Learn and improve continuously

Finally, you need to learn and improve continuously from your negotiation and contract management experiences. You need to reflect on what worked well and what did not, and identify the lessons learned and the best practices. You also need to seek feedback from the supplier or vendor, as well as from your internal stakeholders, such as your team, your peers, and your customers. You also need to keep up with the latest trends and developments in the market, the industry, and the product or service. Learning and improving continuously will help you enhance your skills, knowledge, and performance, and prepare you for future opportunities and challenges.

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Mohammad Z.

Network Cargo | Management Studies from Oxford Brookes University, England and Cargo Marketing from IATA, Geneva | TheCargoBlog.com
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One thing I've found helpful is the use of post-mortem evaluations after the conclusion of significant contract milestones. These aren't just quick debriefs but thorough analyses where both parties dissect the highs and lows of the project. Did we hit the efficiency metrics? Was the communication fluid? What caught us off guard? By looking back, we can look ahead more clearly. And let's remember the power of surveys. A simple survey to team members or end-users can provide eye-opening insights you might have missed. Continuous learning isn't a checkbox; it's an ongoing process that can turn good contracts into great partnerships.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Mohammad Z.

Network Cargo | Management Studies from Oxford Brookes University, England and Cargo Marketing from IATA, Geneva | TheCargoBlog.com
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Here's a nugget often overlooked: the "what-if" scenarios. We usually focus on meeting goals but need more on what could go wrong. A robust contract should outline contingencies for unexpected events—supply chain issues, political unrest, or pandemics. Crafting a "Plan B" isn't being pessimistic; it's being prudent. Similarly, make room for innovation clauses. Markets and technologies evolve, so why should your contract stay static? Make sure there's a framework that allows for adaptability without triggering a legal minefield. These addenda may seem minor but can be game-changers down the line.

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How can you negotiate and manage contracts with suppliers and vendors in the airline industry?

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2

3

4

5

6

1 Know your needs and goals

2 Do your research and analysis

3 Negotiate with confidence and collaboration

4 Manage contracts with transparency and accountability

5 Learn and improve continuously

6 Here’s what else to consider

Airline Management

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How can you negotiate and manage contracts with suppliers and vendors in the airline industry?

1

2

3

4

5

6

1 Know your needs and goals

2 Do your research and analysis

3 Negotiate with confidence and collaboration

4 Manage contracts with transparency and accountability

5 Learn and improve continuously

6 Here’s what else to consider

Airline Management

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