Depending on the nature of your business, suppliers may play a key role in your success. Your supply chain could be simple or it could be quite complex and include suppliers that you deal with day in day out as well as more remote suppliers who you deal with occasionally and/or you do not have a direct relationship.
The general term “supplier” is used in this note but there are a lot of terms (e.g., contractors, consultants and freelancers) used to describe a person or business that you might use to provide goods or services to your business, that may or may not form part of the goods or services you provide to your clients or customers.
You may think a good deal is one where you get everything that you want. That might be okay where you have with a one-off transaction with a supplier but is it really such a good thing if you want to do business with a particular supplier again or have an ongoing partnership with them?
If you want to establish a good supplier relationship and get the most out of that relationship then it is important to consider the bigger picture. Relationships can be unsuccessful if one side feels forced into a corner or “ripped off”. For successful long-term supplier relationships, aim to start off on the right footing with both sides feeling comfortable and happy with the agreement.
Before you start to negotiate, here is some “negotiation strategy” homework you can do to put yourself in the best, most informed and confident position:
1. What is important to you?
What are the key items that are most important to you? What are and aren’t you prepared to compromise on? Be realistic in your expectations – if you’re not prepared to compromise, the negotiations won’t get far.
2. What is important to the supplier?
What are the key items you think or know are important to the supplier? Where do you think they be willing to compromise? Where will the sticking points be?
3. How strong is your negotiating position?
Does the supplier have competitors? Are they a new entrant to a particular market? Will you potentially be their main customer? Might they be willing to offer good deals to get your business?
4. Potential areas of agreement/common ground?
Can you find any potential areas of common ground or agreement that could establish a good starting point?
5. Potential responses/scenarios?
What offers or compromises the supplier might offer you? How will you respond so you don’t get caught off guard?
6. Research actual costs.
Can you find out what it costs the supplier to make their goods or provide their services. It might put you in a good position to know how much wriggle room there is in price negotiations.
7. Get price comparisons
If you are only dealing with one supplier, then it could be useful to get quotes from at least another 2 suppliers, so that you have a good idea of what a reasonable price is.
8. Learn the lingo
Take the time to learn the supplier’s industry lingo and basics, so you know what they are talking about and you at least sound like you know what you’re talking about during negotiations.
9. Who should do the negotiating?
Who are the right people to do the negotiating for you? Who are the people you want to deal with from the supplier? It is a good idea to have people at the right level of seniority who have the information, knowledge and authority to make decisions in the negotiation. Make sure everyone from your end is aware and on board with your negotiating strategy and priorities.
10. Is timing important to your negotiating position?
Negotiating at the right time can be an important strategic tool, for example, if the supplier needs to make targets. However also think about timing from your own point of view, e.g., you ideally do not want to be negotiating when you are under pressure to deliver for a client or customer.
When you start negotiations, the following strategies/tactics can be useful:
11. Positive attitude
Be positive and confident in the negotiation and always remain calm, professional and friendly.
12. Dealing with pressure
Don't allow pressure to force you into agreeing to a point you're not happy with. Ask for a break if you need one – don’t get stressed out. If you are getting nowhere on a particular point and discussions are getting heated or bogged down, then suggest putting it to one side and moving on to something else, then return to it later with clearer heads.
13. Keep notes
Each time you agree to a point, clarify that you've understood it correctly and write it down. Recap the agreed points at regular stages and clarify what remains to be agreed.
14. Bargaining chips
Keep some bargaining chips in reserve! Try to hold back a few things that you're prepared to concede or compromise on until later in the negotiations, so that you can offer them in exchange for the supplier conceding or compromising on other points.
Supplier negotiation doesn’t have to be difficult, but it does help to have a plan so you are prepared to meet any bumps along the way. Good preparation and using these suggested negotiation tactics in your meetings increase the chance you’ll walk away with a good deal and a good supplier relationship for your business.