Supplier relationships make a significant contribution to the performance and results of countless businesses around the world.
If you want to deliver for your customers, stay ahead of your competitors and seize opportunities for growth, it's crucial that you're able to rely on vendors to provide the raw materials, products and services you need at a fair price.
Consequently, procurement professionals should be prepared with a strategy to get the best results from negotiations with suppliers.
1. Research and prepare
Just like any other important meeting or business event, careful preparation is key to the success of supplier negotiations. You're much more likely to get the results you want if you do your homework and go into the discussion with a certain level of knowledge and understanding.
There are various points you might want to focus on during the research stage, including the prices and terms available from a particular vendor's competitors and what you can realistically expect to achieve when it comes to potential discounts and final outcomes.
During the preparation phase, you should also decide on your best alternative to a negotiated agreement, or BATNA. This gives you a contingency plan to fall back on if you're unable to achieve your primary goals from supplier talks.
Doing your research will help you go into every interaction with confidence, which will be evident to the vendor and put you in a better position to negotiate.
2. Set clear objectives
You may have a number of aims you want to reach in vendor negotiations, from securing the best possible price to gaining assurances around quality or delivery schedules.
Before going into any significant meeting with a supplier, make sure you're focused on the most important objectives for your business. That will involve coming up with a list of priorities, which might include:
- Initial purchase cost
- Lifetime cost of the product or service
- Value for money
- Payment terms and conditions
- Aftercare and maintenance assurances
- Quality standards
Concentrating on the goals and outcomes that matter most to your business will inform your negotiating strategy and help to guide the key decisions you make throughout the process.
3. Consider how you can generate value for the supplier
You'll be in a stronger position to negotiate lower prices and more favorable terms with suppliers if you're able to demonstrate how you can deliver value for them, besides the money you pay for the products or services they provide.
For instance, if you operate in geographical regions where a particular vendor doesn't currently have a presence, there might be opportunities to help them gain a foothold in new markets and expand their own operation.
You should also give some thought to how you can help suppliers manage and mitigate their own risks. If you're able and willing to commit to a long-term contract, for example, this could be an attractive proposition to a company looking to shore up its own financial position.
4. Be open to changing how you buy
It's worth thinking about where you can make changes to key aspects of your procurement process to give you more power and control over negotiations, as long as these adjustments won't create any serious disadvantages for your organization.
If, for example, you find after conducting a supplier audit that various units within your business are making multiple separate purchases from the same vendor, you could consider consolidating these transactions into one bulk order.
This will put you in a stronger position to secure discounts. The threat of withdrawing all of your business at once will also give you more negotiating power, since the supplier will be very keen to avoid losing such a large portion of its revenue.
5. Use active listening
In order to be successful, negotiations have to be a dialogue involving a certain amount of give and take on both sides. Focusing purely on your own needs and interests, without listening to what the supplier has to say about their priorities, won't help you build a healthy, mutually beneficial relationship.
Active listening can be a particularly useful technique in discussions with vendors, because it shows that you're fully engaged in not only hearing what the other party is saying, but understanding the mindset and sentiment behind their words.
This will help to build a foundation of trust and mutual respect, which could prove crucial as you look to develop lasting, reliable supplier relationships that generate long-term value for all concerned.
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