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The negotiation process is fraught with challenges, as both sides are trying to get the best deal possible for themselves.
There are four major issues to be aware of when negotiating with your suppliers.
- Leverage: Market intelligence is critical so that you can assess vendors against their competitors. Know what developments are occurring in the market and understand trends. When you are armed with information, you can use it to get suppliers to reevaluate their pricing if you can demonstrate that their prices are out of line with the rest of the market. Make sure you have reviewed your history with a specific supplier before sitting down to negotiate with them. Have a full understanding of your payment history and purchasing levels. You cannot negotiate price or value-added terms without understanding your history with a supplier. Rest assured they will have this information on hand; you will be at a disadvantage if you do not have it as well.
- Timelines: Not all negotiations will be simple or straightforward, but remember that time is money, so managing the negotiation timeline is critical. Use reminder phone calls or emails about pending items, and maintain communication to demonstrate your commitment to the process. One important point — it is in the best interest of both parties to complete the negotiation in a timely manner. The longer both parties spend in negotiations, the more likely it is that both parties will need to make concessions.
- Relationships: Negotiations will not always go smoothly, but that does not mean your relationship with your supplier has to be damaged. Negotiations can be conversational or formal. It is important to find the right attitude to use with each supplier, and the style you choose will depend on a variety of factors, including type of industry, business differential, past relationships, and more. The bottom line is that you need to establish open communication throughout the process.
- Playing hardball: Sometimes your only recourse will be to act tough by canceling the current relationship or excluding the supplier from future business opportunities. This should only be used as a last resort, but it can be used strategically to deflect or discredit the value proposition from a supplier. This tactic also can be used on the buyer especially in cases where one dominant, national supplier secures the entire market and the buyer has little leverage.
The ultimate goal of a negotiation with a supplier is to secure the best possible deal for your company, and to ensure that the supplier remains healthy and profitable.
