Seven wastes of negotiation
The Toyota Production System (TPS) was created by Toyota’s chief engineer Taiichi Ohno to eliminate waste, called “muda.” Waste — as opposed to cost, is the enemy on any production line: a process that is inherently necessary must add value, even if it is expensive so you should be cool about paying a fair value for it.
Ohno-sensei categorised seven types of waste and for each one, suggested reduction strategies.
Even though he was talking about a physical manufacturing line, Ohno-sensei’s categories of waste cross over pretty well to the contract negotiation process, a fact which seems to have escaped every management consultant who has ever ruminated on the issue. A lot of them have.
The seven wastes, as applied to contract negotiation, are these:
- Overproduction: Negotiating contracts that are never ultimately executed, or which are, but where there is low (or no) order flow. Cars which you can’t sell.
- Waiting: Any point in the negotiation process where you are waiting for continuing the negotiation: drafts to client; questions to sales; escalations to risk.
- Transport: Any unnecessary hand-offs to other departments (or the client) is the equivalent of transporting stock in trade in a physical manufacture process. Keep it to a minimum by sequencing the production inputs.
- Over-processing: Unncessary complexity in product design and manufacture that doesn’t have any practical application for the client, or utility for your risk management team. Hint: this is the gorilla in the room.
- Inventory: Work in progress that is not finished product on the shop floor. In a negotiation, that is the client agreement for the time between inception and execution. The longer that average period the larger the inventory. You can’t make any money out of a product while it’s still in the factory.
- Motion: The longer and more convoluted a contract is the longer it takes to read, understand, comment on and conclude. All other things being equal, any unnecessary formal complexity will add time and effort to the job. Short, utilitarian, Spartan contracts. Easy to handle. Robust.
- Defects: Products that don’t work as billed and which may require replacement or re-tooling. Consider the factors that lead to defects: complexity in the product design and manufacturing process. Which is more likely to break down, and what would you rather fix: a Range Rover Evoque, or a 1982 Toyota Hilux?
- If you can’t configure it so it costs less than the value it adds, consider why you are running the process at all: you have a loser of a business.