Supplier negotiations can be a tough topic to deal with. When suppliers eliminate competition by minimizing prices or creating technology interferes with competitors, it often seems like companies are forced to accept the prices of the goods. Moreover, when demand of certain product exceeds the available supply and the suppliers charge any price they wish, you may feel that you have little or no power over negotiation. However, no matter what kind of market power as compared with your business’ supplier, it is important to take a strategic approach to supplier negotiations.
By utilizing following steps, you can do supplier negotiations like never before.
- Familiarize yourself with your suppliers’ costs, product line, market approach and production process. You can only negotiate effectively if you know about your supplier well and how your supplier operates.
If you talk with variety of suppliers and vendors, you will easily get to know the industry language along with what is available in the market and what expertise different suppliers possess. You can benefit from this information using your supplier negotiations!
- Frame your business as a valued customer. Before beginning to negotiate with the supplier, think about how you can convince them for doing business with you. You can also wind up with the partnership that benefits both parties. For example, emphasize that your business would be a long term relationship with them and how much money they are going to make for coming to an agreement with you.
It can also be beneficial to propose a business opportunity like pledging to feature their product to brand new market place if they agree to give you a discount. You may also consider asking for a reduced price against accepting a contract agreement that lowers their price risk.
- Change your ordering habits.
Change your existing buying policy by lumping your orders together into one large purchase.
For example, instead of permitting each department to make separate orders, they all can be combined into a single order so that it must be large enough to be eligible for a bulk discount.
Simultaneously, consider entering into an agreement with other business and placing large orders with one or two suppliers and not several!
- Think of other areas to negotiate on. Not necessarily every supplier is willing to make a discount on price, rather, they can negotiate on other areas of purchase such as bulk discounts, reduced shipping costs, faster shipping or lower down payments. For example, you could ask for extended warranty or longer time to pay, which eventually improve your profit value.
- Be a problem-solver and not a problem causer. Your suppliers’ profits can be hindered radically by your business’ quality, delivery and production issues. If you want a better discount through price negotiations, make sure your demands are justifiable.
- Offer to pay bigger deposits on each order. All companies are affected positively by “accounts receivable days”, so consider offering a larger deposit on your order to reap some hefty discount. For example, paying half the cost up-front can get you 10 percent off the cost or faster delivery or may something more!
- Make high cost purchases. You can get bigger discounts and additional benefits if you contact one or two suppliers instead of several. However, limiting yourself also increases your risks, so consider these carefully before agreeing to anything.
- Accept bid from suppliers. If you want the best possible prices on materials, implement a bidding process to attract proposals from various suppliers. This implies that your company will only deal with the supplier offering the best competitive pricing.
- Stop dealing with the supplier. Well, if all fails and your supplier declines on negotiating over any aspect of business, you can halt any pending orders and bar them from any of the future bidding process. But before doing this, ask them for a price concession for the final time and make sure you can source your materials from elsewhere.
So while attempting to negotiate with your supplier, it can be difficult to re-define your business’ relationship with your supplier. When straining to find the best option- clear definition of issues, cooperation and strategic and analytical thoughts are the key. By following the above steps, you are more likely to come out of your suppliers’ negotiation on the top.