How to Negotiate With Your Suppliers

What Is Risk Management

How to Negotiate With Your Suppliers

You may well be negotiating the right price and other elements of the purchase agreement, but in the longer term, strong relationships and a collaborative approach can have more impact on the overall success of your supplier management.  Both sides should conclude a negotiation feeling comfortable and happy with the agreement as this can be unsuccessful if either side feels forced into a corner.

Negotiating the right deal with your suppliers doesn’t necessarily mean focusing on the cheapest possible price.

You may want to negotiate other factors such as

•           Delivery times

•           Payment terms

•           Quality of the goods.

And other factors to consider should include:

•           Who your supplier is

•           What alternatives you have

•           Whether you want to do business with a particular supplier again.

About 15 years ago I worked for a well-known company who contracted another very well-known catering company to cater for the staff.  My friend and I purchased two chicken sandwiches for lunch on a Monday afternoon. Guess what?  The chicken was rotten so we took them back to the restaurant and complained to the manager.  Her immediate reaction was very defensive.

“No, the chicken is not rotten, because we got delivery of it only this morning”. 

She was adamant it was good food so we asked her to try it for herself.  Eventually she admitted the chicken was bad and promptly passed the blame on to the supplier instead of taking ownership of the situation.

What I am trying to say here is that you cannot blame such failures on your suppliers, because your customers are not interested in your suppliers.  They are only interested in the products and services they pay you for, and quite rightly so. You are totally accountable and responsible for what you sell to your customers and bear in mind mismatches between your needs and supplier offerings could add significant costs, cause delays and even damage the reputation of your business.

Here are some criteria you could measure your suppliers by:

My main criteria for measuring any supplier are:

  • Their financial position including their cash flow. Potential suppliers should be credit checked to ensure they have the cash-flow to deliver what you want, when you need it.  This is especially important if you’re entering into a long-term contract.
  • Their credibility – Running Checks on Your Supplier. Ensure you take up references from both existing and former customers and find out about other partners they do business with. Do they have a good reputation in the market?

Before signing a contract with any supplier it is essential that you carry out your due diligence to ensure that it can fulfil the agreement.

If your supplier is the only available supplier of a particular product or service you are providing, you need to be sure this supplier isn’t at risk of going out of business.  It’s also a good idea to get references for the supplier from other customers.  The supplier should be happy to put you in touch with some of its existing or previous clients. If not, ask yourself what it is trying to hide.   However, remember that it’s unlikely to put you in touch with a dissatisfied customer.

By conducting some basic research into a potential supplier you can work out how valuable your business is to them. Your bargaining power increases in direct proportion to your potential suppliers’ need for your business, so the more competitors a supplier has, the stronger your position is. Finding out what other suppliers can offer gives you a benchmark for the sort of deal you can expect to achieve.

The supplier will probably also run checks on you to ensure you have the means to pay for its goods or services.