As the global marketplace becomes increasingly interconnected, digitalized, and complex, so too does the supply chain. To ensure optimal cost savings, high efficiency, and supplier dependability, procurement and supply chain managers must always have an eye to the future, staying abreast of new technological advancements, market shifts, and regulatory and compliance guidelines. But one crucial skill remains a constant: the art of negotiation.
Developing a coherent, effective supplier negotiation strategy can be tricky, inevitably involving some degree of trial and error, but following a few time-tested guidelines can be immensely helpful, simplifying what at first shot may seem a daunting undertaking.
Preparedness is key. In fact, many negotiation experts have posited that 75% of the total time dedicated to the negotiation process should be spent preparing. This is increasingly important, as the power continues to shift from buyers to suppliers.
Below are a few tips to keep in mind when developing a supplier negotiation strategy and putting it into action to bring about greater savings and better vendor relationships.
How to Ensure Effective Supplier Negotiations
1. Have a clear picture of your overarching goal
Before trying to dissect a supplier’s aims, first analyze your own. What does your company want out of this partnership, and on what terms?
Be sure that your shorter-term goals with suppliers are in line with — and will support — the overarching goals of your organization. This will allow you to establish a negotiating strategy that gets you closer to your ultimate company goals and will reduce the risk of falling victim to upselling.
2. Get to know the supplier’s company and goals
Take the time to do your homework. Study up on the supplier’s business through their website, paying special attention to growth plans, company history, operational facilities, and so on.
Try to determine which products or services are most important to them; many suppliers will try to push certain items in order to bring in product-specific bonuses offered by the vendor’s company. Understanding the internal incentives driving suppliers’ sales teams will help in establishing a mutually beneficial contract.
If you can identify a way to help the vendor get the incentives they’re after without wasting your own money and resources, your partnership will be more valuable to both parties. In some cases, even just writing a short testimonial for a supplier can bring about discounts for your company.
3. Research each player on the supplier’s negotiating team
In addition to getting to know the supplier company’s overall mission, guiding principles, and sales incentives, take the time to familiarize yourself with the people you’ll actually be meeting with.
Research these individuals online using sites like LinkedIn, and try to get a feel for their professional backgrounds, temperaments, and achievements. Even just finding out that you’re both fans of the same sports team can help in relating to them and establishing trust. This will help in figuring out how to deal with these key players. (Of course, don’t make it too obvious that you researched them beforehand or you may come off as phony.)
4. Be transparent and upfront about your needs
Withholding certain information or being ambiguous about your company’s aims will only backfire in the long run. While there is some chance you’ll gain an immediate, short-term advantage, you risk hurting your company’s reputation in the process.
Be clear in what you want and expect from the supplier, and remain upfront throughout the negotiation process. If the supplier sees that you’re acting in good faith, they will be more likely to be upfront with you as well, facilitating in the establishment of a long-term, mutually beneficial partnership.
5. Review the supplier’s track record
To ensure that you don’t get a bad deal or enter into an agreement with an untrustworthy supplier, it’s important to look for tangible evidence of the vendor’s past successes and achievements. Ask colleagues if anyone has dealt with the supplier in the past, and call upon the supplier management team to review the supplier’s records.
Being aware of the supplier’s tactics and habits beforehand can be hugely helpful. For example, if you know ahead of time that a vendor has been able to raise prices during every prior contract renewal, you can be better prepared to push back or find middle ground.
Setting Yourself Up for Success
Before entering into negotiations with any supplier, it’s crucial to have a game plan laid out ahead of time. Following the five tips listed above will help set your company for success, even in the most complex interactions.