Supplier Negotiations Tips: Close the Right Deal
Updated: Oct 25, 2021
Supplier Negotiations can be a tough topic. When suppliers eliminate competition by minimizing costs or creating technology interferes with competitors, it often seems like companies are forced to accept the new prices of goods. Furthermore, when increases in demand exceed the available supply and the supplier is able to charge any price they wish, you may feel that you have no power to negotiation. However, no matter what kind of market power you have compared to your business’ supplier, it’s important to take a strategic approach to supplier negotiations. By utilizing these steps, you can treat supplier negotiations like any other kind.
1. Familiarize yourself with your supplier’s costs, product line, market and production processes. You can only negotiate effectively if you’re well-educated about how your supplier operates. If you talk with a variety of vendors, you’ll become familiar with industry language, what’s available and what expertise different suppliers possess. You can benefit from this information during your supplier negotiations, especially when determining the compromises your supplier may find acceptable.
2. Frame your business as a valued customer. Before beginning supplier negotiations, think about how you can convince them of the importance of doing business with you. In the end, you could wind up with partnership that benefits both parties. For example, emphasize that your business would be a long-term repeat customer and let them know how much money they stand to make from coming to an agreement with you. It can also be helpful to propose a business opportunity, like pledging to feature their products for a new market if they give you a discounted price. You might also consider asking for a reduced price in exchange for accepting a contract agreement that lowers their price risk.
3. Change your ordering habits. Change your existing buying policy by lumping your orders together into one large purchase. For instance, instead of allowing each department to make individual orders, require that they all be combined onto a single order that must be large enough to be eligible for a bulk discount. In addition, consider entering into an agreement with other businesses and placing large orders with one or two suppliers instead of several. You can also try changing to a different product that costs less.
4. Offer to pay bigger deposits on each order. All companies are affected by “accounts receivable days,” so consider offering a larger deposit on your orders to reap a hefty discount. For example, paying half the cost up-front can get you 10 percent off the cost, faster delivery or the ability to order custom products.
5. Make high-cost purchases. If you use one or two suppliers for your materials needs instead of several, you can get bigger discounts and additional benefits. However, limiting yourself also increases your risks, so consider these carefully before agreeing to anything.
6. Be a problem-solver, not a problem-causer. Your supplier’s profits can be hindered significantly by your business’ quality, delivery and production issues. If you want a better price through supplier negotiations, make sure your demands are reasonable.
7. Accept bids from suppliers. If you want the best possible prices on materials, implement a bidding process to attract proposals from various suppliers. This indicates that your company will only deal with the suppliers that can offer the most competitive pricing.
8. Think of other areas to negotiate on. If your supplier is unwilling to negotiate on item pricing, they may be willing to negotiate on other areas of purchases, like bulk discounts, reduced shipping costs, faster shipping or lower down payments. For example, you could ask for a longer warranty or extended time to pay, which improves your profits.
9. Stop dealing with the supplier. If all else fails and your supplier refuses to negotiate on any aspect of business, you can halt any pending orders and bar them from taking part in any future bidding processes. Before doing this, however, ask them for a price concession and make sure you can source your materials elsewhere.
When attempting to supplier negotiations, it can be difficult to re-define your business’ relationship with your supplier. When trying to find the best option, clear definition of issues, cooperation and strategic and analytical thought are key. By following the above steps, you’re more likely to come out of your supplier negotiations on top.