Supplier Negotiation

At Cost Map we have spent the last 20 years developing a methodology for negotiating with suppliers. It is embarrassing really, however we ended up generating a cumbersome procedure that was I suppose……. confusing!

We then sat down and asked ourselves what was really important and were able to condense our experience into a three step procedure. This procedure isn’t revolutionary, however all three points are very important and really work.

Step 1: Preparation

You could simply say the three key steps to successful negotiation are preparation, preparation and preparation. If you have prepared properly 75% of the work is done!
First you need to think about what you really want and prioritise your requirements.

For example if you want a new delivery van for your company there are more factors involved than the purchase price. Typical factors might include:

  • Purchase price
  • Age of vehicle
  • Size of vehicle
  • Warranty
  • Fuel efficiency
  • Ongoing maintenance costs
  • Ongoing road tax & insurance costs
  • Tax efficiencies
  • Brand of vehicle

Your initial intention may have been to buy a two year old vehicle, however following analysis of the above criteria it may make more sense to set up a lease/buy deal that includes ongoing maintenance as part of the package.

Once you know what you want the next step is to research the market.

Unfortunately this part of the procedure takes time and effort. There are many ways to research the market. You could start by using the web, trade journals, trade shows, trade directories, trade organisations, internal & external colleagues. One thing you should always do is to pick up the phone. Never neglect talking to people directly. One phone conversation leads to another and informs you of market prices, alternative suppliers and different quality standards.

Now that you know what you need, the key suppliers and ballpark prices, it is simply a matter of approaching three or four of the key suppliers and asking them to quote for the business.

Step 2: Humanity

The expression “its nothing personal its just business” is just wrong!
Negotiation and business in general does not take place between machines it takes place between people. When negotiating you need to be tough on the issues but gentle on the people.

The relationship with suppliers needs to be more formal then personal. Positive human traits however like honesty, good time keeping, respect and general good manners will result in a better outcome for everybody. People will often walk away from a good deal simply because you have been disrespectful.

If you believe you have achieved a great deal for your company, never gloat or do anything that will result in the other party feeling dissatisfied. Do your best to ensure that the other party believes they have secured a good deal.

Step 3: Be prepared to walk away

Always be ready to walk away if the proposal on offer does not meet your expectations. People often fall into the trap of believing they have no other choice than to accept what’s on offer. Generally the problem is either lack of preparation or time restraints.

If you have researched the market you will know the ballpark prices, quality levels, service agreements etc. You will also have identified several suppliers who can fulfil your requirements and should never be under pressure to commit to any proposal you are uncomfortable about.

Never leave things till the last minute and always have an alternative to a negotiated agreement.

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