Five Essential Tips for Negotiating with Suppliers
A good negotiation means research, preparation, and building a clear strategy for the negotiation itself, well before you need to consider storage issues, such as shelving systems for your goods. Use these practical and proven tips for a successful negotiation.
Set Fixed and Flexible Objectives
Before you (and your team) enter into the negotiation process, draw up a table of your objectives. Where possible, set out a range rather than a specific number, and think about how flexible you could be about compromises being made across different objectives.
- Price and Payment Terms – what’s the price range your organisation would be happy with? What are the minimum orders required? These factors are important for early planning, especially for warehouse spacing and storage solutions, such as pallet racking.
- Delivery and Shipping – what are the delivery and shipping terms and costs?
- Service and Maintenance – does the supplier offer service and maintenance?
- Role in Your Product Catalogue – how important is this product or product line to your business?
Once you’ve set your objectives, you’ll be able to formulate a definitive negotiation strategy. You’ll be clear on the points you’re willing to compromise on and the non-negotiable goals.
Knowing Your Supplier
The most you know about your supplier and their industry, the more effective your bargaining will be. Find out how competitive the supplier’s market is and hence how strong your bargaining power. Is it a supplier’s or buyer’s market? How important is this specific supplier’s product line to your business?
Get plenty of quotes before you start negotiations so you’ll know the benchmark pricing to expect. Think about your supplier’s objectives – are they looking to sell as much as possible, offload spare goods, meeting a quota, building market share, or are they desperate to break into your local market?
During the Negotiation
Approach the negotiation with a positive attitude but don’t reveal your position too early. Never indicate your compromises unless it’s appropriate – only raise them as bargaining chips in return for something else. Where possible, have the supplier give a starting price and ask them outright for discounts rather than waiting for them to bring it up as a concession.
Don’t accept the first offer, even if it’s better than you anticipated. Always haggle. Don’t fall for common tactics, such as deadlines or threats to walk away if you don’t concede. Keep your objectives in mind and avoid using these antagonistic tactics yourself wherre possible. Remember, the odds are that you’ll probably be able to find a better supplier if things fall through.
At the end of the negotiation, make sure you’ve made a paper or digital recording of the key points reached. Confirm the points and ask for clarification where appropriate.
Beware Bottoming Out on Price
Obtaining a good price is part and parcel of any negotiation, but be careful about bottoming out of price. Even the best suppliers and manufacturers can’t perform miracles – if the price isn’t delivering an adequate margin and covering costs of manufacture, it’s likely that they are cutting back on something else. Do plenty of research beforehand to check that quality isn’t being compromised.
Long Term Focus
Bargain hard, but always negotiate courteously and with a view to building long term relationships, even if you don’t hold this view in reality. Safeguard your business reputation and treat suppliers with respect as you never know – you might find yourself vying for their products in the future.