Sometimes the hardest people to negotiate with are suppliers, perhaps those who have been loyal to the company for many years. But could some of these relationships, however pleasant, be affecting profitability? Consultant Chris Merrington explores how to manage supplier relationships to deliver the best return for the business.
Profitability can be substantially improved by buying more effectively, not just selling effectively. However, sometimes we may feel awkward about pushing a supplier’s price especially if we’ve had a long-term relationship with them or simply we like them.
Your first responsibility is your company. You are in business; this is not a social club. If you are buying on behalf of your company then you have a responsibility to buy wisely. That is not the same as buying the cheapest. It is possible to negotiate effectively without being aggressive. In fact assertiveness is a powerful state to negotiate from.
Delegates on my negotiation workshops often feel so uncomfortable negotiating with suppliers, some more than when they negotiate with their clients, which seems surprising. I hear horror stories about some procurement ‘amateurs’, (I can’t really call them professionals). Some bullying purchasing and procurement people believe in Win-Lose negotiations. They win, you lose. This is naive especially with ongoing suppliers.
Some believe in aiming so low they feel embarrassed to ask! I believe in treating my ongoing suppliers really well. I pay them within seven days. I see them as a vital partner in my business. They contribute to my success. I then show them my loyalty in the form of ongoing business.
Having said this if a supplier lets me down I will speak plainly and let them know my disappointment. I will give them the opportunity to put things right, once and once only.
What should you watch out for with suppliers? One common ploy by new suppliers is to pitch their price low to get their foot in the door. They then increase their price subsequently.
Secondly beware of the post-honeymoon period. Once they’ve got your business they become complacent a few months later. Be alert to that.
Here are ten tips to help you achieve more with your suppliers, yes ‘with’ rather than ‘from’:
- Identify your top ten suppliers by spend each year and have an annual meeting with each one to discuss terms and review their service and pricing.
- Seek win-win relationships with your key providers. If you are dependent on them make sure they are satisfied by the relationship.
- Get competitive quotes to benchmark their prices. Don’t use this to beat them with but to give you an objective comparison. If a supplier provides a better service then be prepared to pay more than the commodity provider. Know what alternatives you have.
- Understand what is important to your suppliers over and above simply price. Is it payment terms, continuity of business, notice period, exclusivity, referrals etc?
- Know your walk-away point. At what point will you say ‘no’ to a price or demand. Knowing this is vital.
- Aim realistically low in your supplier negotiations. Be prepared to justify your numbers.
- For large purchases consider spreading the business between say 2 suppliers, one with 60-70 per cent and one with 30-40 per cent. Drop me an email and I will explain why.
- Be careful negotiating with suppliers when you are under time pressure and out of desperation.
- Ask them to confirm their quotation in writing.
- Think into the future. What if this business relationship blossoms and grows. What precedents will we set today which hamper us in years to come?