Supplier Negotiation

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 skilful 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 tips and points to consider when you find yourself negotiating with Suppliers:

  1. 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 of a mark-up your Supplier has then it can help you determine whether you are in fact receiving a good deal.  Better yet, if you understand the manufacturing costs it puts you at an even stronger position when it comes time to negotiate.
  2. Build a rapport with your Supplier’s. In order to negotiate the best deals – be attentive, listen, respond to any issues they have and improve communication. The better the working relationship is with your Suppliers, often better terms will be negotiated.
  3. 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, discounts for contract extensions, etc. If you can come up with something which benefits both parties you are onto a winner.
  4. Get quotes from at least three suppliers – and let each of the suppliers know that you are soliciting quotations from other vendors. This will both condition and encourage them to price more competitively.
  5. Based on the volume of the requirement you should be able to improve your unit costs. For example, advising a supplier on a requirement for a larger volume of product will improve unit cost. The Supplier often can receive a reduction in input costs if the volume is higher.
  6. Ask Suppliers for a list of current customers so that you can reference the exact product type you want. Customers may provide valuable insight and may discuss certain commercial aspects which may be a good starting point in your negotiations.
  7. If you really want to create leverage when dealing with Suppliers, suggest you are prepared to apply a healthy deposit upon confirmation or completion of terms – many companies are often cash poor and this gesture may reduce your purchase price. If you are able to offer a 50% deposit for a relatively substantial order you’ll be in a position to request a concession from the Supplier. The higher the deposit, the better the unit price you will be able to negotiate. There is always a risk in providing capital upfront and understanding which suppliers you can do this with is prudent.
  8. Don’t appear too keen – often deals end up going to the person or company which demonstrates patience . . . urgency is not in your best interest when in a negotiation conference. It is important to be vested and interested in the offer just do not be a keener and as always make sure you have prepared a Plan B just in case things start to go sideways.

These are just a few of the techniques you should bear in mind in order to get the very best deals when negotiating with suppliers.

Reference: Buyer Bits article on Negotiation HERE

Filed under: Negotiation

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