Everything is negotiable. Everything. Even if it seems a supplier has a monopoly on something you need for your business, there are ways to negotiate better terms or find other ways around the need to use that particular supplier if you know how.
Overall, most of your negotiations won’t be so fraught. You are simply being a good business person by making sure you are paying fair prices that fit within your budget and help you maintain or grow revenues. Your supplier is doing the same.
Negotiations are a little like competitions. There are two teams: your procurement team and the supplier’s selling team. Each team tries to gain an advantage and “win” a better deal for itself.
Here are a few negotiation tactics and strategies you can employ, no matter the size of your business, to get the best deal you can from your suppliers and vendors.
Before Starting Negotiations
Like any team, your procurement team must prepare. Of the total time you spend in negotiation, three-quarters of it should be spent in preparation.
- Request and evaluate supplier proposals
- Develop a strategy for negotiating
- Gain the endorsement of upper management and the head of each group impacted by the negotiation
You need a formal primary and secondary objective to address with the supplier. Determine the acceptable ranges of solutions for each negotiating point:
- Maximum supportable solution (ideal solution)
- Least acceptable solution (last resort solution)
- Best alternative to the negotiated agreement
These ranges will give you flexibility at every point along the way to gain momentum and work your way toward your goal.
You need to come with the same leverage and strengths as the supplier team. Be assured they will come prepared whether you are or not.
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Preparation Techniques
You have several pathways to learning more about your supplier before you ever meet. Your team needs to take the time to become familiar with the supplier’s company, discover its agenda, and find leverage points.
- Each team member should go through the supplier’s website to familiarize themselves with the company history, growth plans, product lines, and facilities.
- Read press releases to learn about current events impacting the supplier.
- Look up the supplier’s other customers on Google or LinkedIn to find their procurement lead and get some advance intelligence about non-confidential aspects of their negotiations.
- Volunteer to prepare and send out the written meeting agenda to learn the names, titles, email addresses, and phone numbers of the members of the supplier’s team as well as a list of issues the supplier would like to discuss.
- Use social media networks to learn more about individuals on the other team.
- Review the supplier’s performance history to find areas where claims and performance don’t match to use as leverage for concessions
- Select and prepare the right players for your team. If you must include a weak negotiator, find ways to limit that member’s involvement in the negotiations.
- Develop and rehearse non-verbal signals to tell the team when to stop talking, take a break to discuss things privately, or change the direction of the discussion. Examples include tapping or clicking a pen, closing a notebook, or touching your ear.
- Create a written strategy well in advance. This is your playbook. Under no circumstances should the supplier or the other negotiating team see it.
Learn How and When to Shop Around
First of all, you should never sign a multi-year contract with any supplier. It never favors you. Negotiate a new contract each year to force bidding or renewal discussions with your current suppliers. Most of the time you will come away with lower costs.
Comparison shop by conducting a regular spend assessment. Don’t assume suppliers are fulfilling their contracts at the best price. Compare how much you spend with what you get in return and what other suppliers are charging for similar goods. You may uncover a negotiating point or two.
Shop around. Just because you have been buying your widget from Acme for 20 years doesn’t mean you can’t look elsewhere for a better price. Either you can negotiate your present supplier down or change to a new supplier with a better price. If there are few suppliers for that widget, consider bringing in a supplier from an adjacent market or become the supplier yourself if you can do so. (That would be the last resort bid and highly risky.)
Consolidate Buying Power
Consolidate buying across your organization. Once you have your spend assessment, you can see everything you purchase from this supplier. You may have different divisions buying the same thing. You can consolidate that purchase to get a break for volume purchasing. If you are not big enough to do this yourself, form a consortium with other small businesses to create leverage.
Do the Supplier a Favor or Two
Help the supplier find alternatives for materials or processes to save the supplier money. Make everything a win-win to grease the negotiation wheels rather than make demands. Help the supplier find new clients. Then you can negotiate a lower price for the favor of saving the supplier money or gaining new customers.
Most people never learn how to negotiate, but when you own a business, you owe it to yourself and your stakeholders to wring value out of every dollar. Your supplier is doing the exact same thing, so you need to learn how to play the game.