Negotiating with Suppliers (8 General Points)
The art of negotiation comes in useful in all aspects of life and is a skill many people struggle with. If you are an agent or representative of a company, this is one task you should embrace and make every effort to develop. There is no question that skillful negotiators are able to achieve the very best deals with suppliers, which can lead to improved margins and profits for your company.
Here are a few pointers to consider when you find yourself negotiating with suppliers:
- Research the “Should-Be” Costs
Always attempt to research the “should-be” costs (more on this in an upcoming post) of the product you are dealing with. If you know how much markup your supplier applies, it can help you determine whether you are actually receiving a good deal. Better yet, if you understand the manufacturing costs, it puts you in an even stronger position when it comes time to negotiate. - Build a Rapport with Suppliers
Build a rapport with your suppliers. In order to negotiate the best deals, be attentive, listen carefully, respond to their issues, and improve communication. The better the working relationship is with your suppliers, the better the terms you are likely to negotiate. - Find Areas of Mutual Gain
If your supplier stands firm and won’t budge on price, then it might be time to focus on other areas instead. For example: payment terms, down payments, length of warranty, discounts for volume purchases, or discounts for contract extensions. If you can come up with something that benefits both parties, you’re on to a winner. - Solicit Quotes from Multiple Suppliers
Get quotes from at least three suppliers, and let each of them know that you are soliciting quotations from other vendors. This conditions suppliers and encourages them to price more competitively. - Leverage Volume to Improve Costs
Based on the volume of the requirement, you should be able to improve your unit costs. For example, advising a supplier about a requirement for a larger volume of product can improve unit cost. Suppliers often receive a reduction in input costs when volume is higher. - Request Customer References
Ask suppliers for a list of current customers so that you can reference the exact product type you want. Customers may provide valuable insights and discuss certain commercial aspects, which can serve as a good starting point in your negotiations. - Offer a Healthy Deposit
If you really want to create leverage when dealing with suppliers, suggest that you are prepared to provide a healthy deposit upon confirmation or completion of terms. Many companies are often cash-poor, and this gesture may reduce your purchase price. For example, offering a 50% deposit for a substantial order puts you in a position to request a concession from the supplier. The higher the deposit, the better the unit price you can negotiate. However, there is always a risk in providing capital upfront, so understand which suppliers are trustworthy before proceeding. - Avoid Appearing Too Keen
Often, deals go to the person or company that demonstrates patience. Urgency is not in your best interest during negotiations. While it is important to show interest in the offer, avoid appearing overly eager. Always make sure you have prepared a Plan B in case efforts go sideways.
These are just a few of the techniques you should bear in mind to secure the very best deals when negotiating with suppliers.
Reference: Buyer Bits article on Negotiation HERE