Due to a reduction in the number of suppliers, supply chain managers in many industries are losing negotiating power. While it was once true that supply chain managers held the reins of control – they chose the best terms from a large vendor pool – today, supply chain managers find themselves at the mercy of one or two suppliers’ terms. This is where masterful negotiation skills give you an edge.
Do your research.
The first step in any negotiation is preparation.
- Gather internal data like required timelines and budget.
- Define your BATNA, or the “best alternative to a negotiated agreement.” Prepare at least two or three alternate options to your planned outcome. For example, are you willing to accept quicker delivery as an alternative to a reduction in price? Or, can you offer an increased order size for a decrease in price per unit? In her article, “Negotiating for Success,” Shana Martin, SCRC, states, “When negotiating with suppliers, more is at stake than just price. Knowing the other variables in a deal and prioritizing them makes negotiating easier.”
- Define the critical issues that make or break the deal for your organization.
- Understand the supplier’s goals, and map an optimal approach for the meeting. It’s also a good idea to brainstorm what you can bring to the table that the supplier values, such as help with getting into a new market or niche.
Define a clear strategy for the negotiations.
Supply Chain 247 recommends sending the supplier’s team an email before the negotiations begin to gather the following information:
- Attendee names, titles, email addresses and phone numbers.
- A list of the issues the supplier wishes to discuss.
Listen more than you talk.
When the negotiations start, let the vendor speak first. This allows you time to understand their offer and prepare your counter offer. Ask questions, and allow the vendor to answer. Don’t be afraid of silence, and don’t be the first to offer to split the difference. Often, your silence leaves room for vendors to offer better terms.
Hiding your agenda may give you a competitive advantage in the short run, but it does nothing for a long-term business partnership. Shoot straight, be honest, and aim for a win-win negotiation where the supplier enjoys a positive outcome as well.
Summarize the discussion.
After your team and the supplier’s team have come to a favorable deal, summarize the discussion in writing to avoid delays come contract time. Include any agreed-upon concessions, special terms and conditions.
Negotiating with suppliers can be tricky business. If you make the wrong move, you risk undermining a potentially important relationship. Effective procurement requires research, careful planning and confidence. It also requires you help the supplier feel good about the new relationship by respecting both parties’ needs.