Negotiation Skills

1982 to March 1985: Why did BDVS avoid negotiating with APG headquarters? What was the consequence?

BDVS (Becton Dickinson & Company – Vacutainer Systems Division) had maintained about an 80% of the US blood collection tube market and 30% in case of blood collection needles. BDVS sold its products to hospitals through a wide network of independent distributors.

Affiliated Purchasing Group (APG) was primarily formed by a group of not for profit hospitals to provide various services to member hospitals, including purchasing programs. They sought to take advantage from the centralised purchasing to get discounts on hospital product supplies including above. It involved nurses and doctors from affiliated member hospitals to discuss cost reduction possibilities in the era of reducing revenues.

As BDVS was the major supplier for the hospitals, APG demanded substantial price reductions from them as part of its move towards standardisation of needles and tubes.

BDVS avoided negotiating with APG headquarters because of the following reasons:-

• BDVS had a strong hold on the market, including the member hospitals of APG, making it possible for BDVS to retain most of its sales individually with the hospitals. BDVS was not selling products on Cost Leadership, but on product differentiation and provided good quality product.
• The possibility of greater profits was there with BDVS if they negotiate with the member hospitals on a case to case basis. The purchase decision making was still with individual hospitals.
• APG was imposing a private label program whereby suppliers had to use APG logo in their products. This was against the brand image of BDVS.
• APG wanted its suppliers use its affiliated list of distributors, which were not well established from 1982 to March 1985. BDVS had its own chain of robust distributors.
•  Competition from Japanese company Terumo and Sherwood Medical Corporation (major competitors) was less in the above period which didn’t warranted reduction in their prices. This can be further proved with the fact that even after APG established a National purchasing agreement with Terumo, BDVS was able to retain its sales.

The consequences of not negotiating with APG included:-

• The relationship between APG and BDVS was impacted negatively.
• APG started aggressive marketing to its member hospitals by establishing a group of field personnel for promoting the importance of compliance to APG negotiated contracts, which hampered many accounts of BDVS.
• APG had grown from a group of 20 hospitals in 1975 to more than 500 hospitals by 1985 and had established national purchasing agreements with about 100 medical equipment suppliers, including competitors of BDVS. Hence, APG was not an organisation which could be ignored and had started affecting BDVS business. This made BDVS to mend fences with them and come to talking terms.

The above led to increase of purchasing power of buyer than supplier leading BDVS to think towards APG.

April 1985 to July 1985- 4 meetings: How did the negotiations proceed? Why?

April 1985 – After seeing that BDVS managers were seeking to mend fences, APG announced its intention to establish a new national purchasing agreement for blood collection products. They asserted that the supplier who agreed their pricing terms and gets the contract would receive 90% of the business in these products. One of the APG managers also informed BDVS that this would be a showcase program for a high degree of compliance from the member hospitals. Here they, had positioned themselves on a particular price range lower than the one likeable for BDVS but tried to meet their needs by giving them assurance of volume of job.