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This is an article about tips for winning supplier negotiations by giving tips on how to negotiate with suppliers. It discusses the importance of building rapport with suppliers. It also emphasizes the need to be prepared with information about the supplierโs costs and other customers. The article recommends using financial strength and a strategic approach to gain an advantage. However, it also advises against burning bridges with suppliers.
The 35th US President, John F Kennedy during his inaugural address, said, โLet us never negotiate out of fear. But let us never fear to negotiate.โ As a procurement professional in this competitive world, Kennedyโs mention of โnegotiationโ reminds us of how supplier negotiation is an essential skill.
Negotiating with suppliers can be a complex and challenging task. However, with the right approach, you can win supplier negotiations and get the best possible deals for your business. This article provides 11 successful tips for supplier negotiation that you can use to improve your results.
Here are some interesting data points as to
What is the Impact of Dissatisfied Suppliers?
53%ย of companies report facingย negative consequencesย due toย dissatisfied suppliersย (Gartner,ย 2023)
49%ย of businesses experienceย higher procurement costsย fromย unsatisfied suppliersย (Deloitte,ย 2022).
32%ย of supply chain disruptions are directlyย linked to supplier dissatisfactionย (Supply Chain Management Review,ย 2023).
What is the cost of Unhappy Suppliers?
The average cost of aย dissatisfied supplier relationshipย isย $4.7 millionย per year (Aberdeen Group,ย 2022).
Increased churn rateย from dissatisfied suppliers can cost businessesย 15-25%ย in lost revenue (McKinsey & Company,ย 2023).
Reputational damageย from supplier-related disruptions can lead toย significant brand value lossย (Forbes,ย 2023).
The average cost of a dissatisfied supplier relationshipย isย $4.7 millionย per year
Learn More: Supplier Network
How to prepare for contract negotiation?
- Know your goals & Plan and build an initial strategy:ย What do you absolutely need,ย and whatโs flexible? Prioritize your objectives and prepare the team.
- Research the other party & gather the data: Have a full information by understanding needs,ย strengths, and potential weaknesses of the other party.
- Define your BATNA:ย This is your โBest Alternative to a Negotiated Agreementโ โ your fallback option if talks fail.
- Plan the team and assign work & responsbilities.
- Practice:ย Rehearse your talking points and responses to potential counteroffers.
How to Negotiate with Suppliers?
Here are eleven successful tips for winning supplier negotiation
1. Build your Rapport
In business, building rapport plays a prime role. Excellent rapport manifests excellent communication and helps negotiate better. Professionals can build rapport with suppliers by being communicative, attentive, responsive, and approachable and gain a competitive advantage over decision-making.
Read more on: Negotiating your way to a lasting supplier relationship
2. Reach out for More
When you are looking to buy a service/product, reach out to more than one supplier. Ask each one of them to give you their best price while informing them about the other suppliers you have contacted. This way, each supplier will know that they have to provide you with their best to be able to win a contract with your organization.
3. Know their Customers
Depending on your bandwidth, figure out your supplierโs existing or past list of customers. Reach out to those customers for their feedback. If the customer is happy with your supplier, you will know how best to amend your offer.ย If the customer isnโt pleased, and you are determined to work with the supplier, you can be at an advantage on the negotiation table.
Learn More: Zycus iContract Solution
4. Cost to Supplier
On the negotiation table, be in the know of the actual cost of the product/service you are trying to buy. By figuring out the cost incurred to make the product, you have a much better idea of how less you can expect from the seller.
5. Build on the Offer Price
Inquire the supplier for the best price for a large quantity. Once you get the price, you can then go for the exact amount you need with an offer that is neither hurts you nor the seller. In this attempt, be reasonable to offer a sensible price that doesnโt trigger a loss to the seller.
6. Flex your Finance
When you come to the negotiation table, come with a cash reserve. The higher advance you can afford, the more command you can have over the whole negotiation. It will flaunt your financial strength and sustainability on which the supplier can bank for a long time. Ensure you clear about the payment terms beforehand and make more than half of the total price as a deposit.
7. Mental Math
In most buyer-supplier negotiations, a supplier is willing to work with the buyer who wants it the least (kind of mental game). Be like Tom in Huckleberry Finn; show your unwillingness on the face and keep willingness to the heart. A general disinterest will intrigue your supplier to consider your offer and be your supplier-of-choice.
8. Find your Sweet Spot
Have you a record of working with great suppliers, have you stories where your suppliers have praised you for your timely payment? You can include such anecdotes in your negotiation to position yourself as a buyer of choice. A supplier would love to consider a long term business deal even if it is asking for a significant cut in price.
9. Be Empathetic
Do proper research on your supplierโs business goals, which will help you draw on your common interests and build empathy. Supplier may refuse the price you offer, but an empathetic approach may help you negotiate with the down payment, after-sales service, or product warranty period, etc.
Learn More: Complete Guide to Vendor Management โ its Benefits, Challenges, Process & Best Practices
10. A Friend Indeed
As talks advance and you are to finalize a deal, do not forget your requirement is not one time. So, be mindful about sustaining the relationship. To add value and enrich your supplierโs work experience with you, offer strategic advice that will help them control cost and increase efficiency. Remember, if they can procure better, you get a better deal.
11. Brag your Credibility
The best way to win a supplier is to think like a supplier. Try their shoes and understand that they have the product to sell but need credibility to earn a long-term business deal. Likewise, as a buyer present your credibility, thatโll build trust and competitive rates.
How to build the team for Supplier negotiations?
Learn More: Supplier Sourcing
Supplier Negotiation: Conclusion
The above strategies are not only useful in supplier negotiation but in business negotiations as well. Whatever be your strategy, do not forget your long term goals and never to burn a bridge with a supplier. Even if you are not going to be doing business with a particular supplier, be polite in your dealings.
Put those 11 winning tips into action with Zycus! Request a demo!
Related Reads:
- Blog- Enhancing the Contracting Process with Negotiation, Technology and more
- Embracing Automation for Enhanced Connectivity, Supply Network Relationship and Role of Automation
- Can Game Theory be a Game Changer in Procurement Practices?
- 6 Successful Purchasing Negotiation Tips for Every Buyer
- Supplier Relationship Management: A Comprehensive Guide
- Zycus Supplier Network Management Software
- Download eGuide- The Ins and Outs of Supplier Networksย
- Download Whitepaper- Essential Components of a World-Class Supplier Performance Management Tool : A MENA Perspective
- Press release โ Zycus eSourcing the first to celebrate procurementโs proficiency in negotiation
