A step-by-step guide to successful supplier negotiations
Procurement teams need to be prepared with good reasons as to why their vendor should lower prices. Here’s what to consider before asking for lower costs.
Alongside supply security, pricing is inevitably the most critical task for procurement team — especially now as businesses look to cut costs in the current economic environment. But the success of bringing down supplier costs ultimately comes down to negotiation skills.
Procurement teams need to be prepared with good reasons as to why their supplier should lower prices. Beyond just price, however, successful negotiations require businesses and suppliers to align on agreeable terms around pricing, lead time and volume commitments.
Below are the three key steps of a successful negotiation:
1. Gathering initial information
Procurement teams need a 360 degree perspective on internal and external environments so they can spot potential opportunities and negotiate lower prices. But gathering data doesn’t just mean looking at a spreadsheet — actually visiting a supplier site, for example, can sometimes be even more useful than a list of numbers.
Here are some places to get started:
Track material prices within your supplier’s industry. There are a couple of ways to go about this. For instance, packaging will usually have the material manufacturer’s name printed. That can allow you to get a better sense of your supplier’s costs from their suppliers. The alternate approach is to use the external consulting firms who have the market reports on all the industry segments for access.
Know your supplier’s financials and business plans. A disruption at a critical supplier can have a huge impact on production and revenue. Whirlpool saw production volume decline 5% in Q4 due to a “one-off” disruption, for example, with net sales falling 15.3%. Procurement teams should have a strong sense of their supplier’s business situation to spot and prevent disruption before it happens.
Understand your supplier’s process. Visiting a supplier site can give procurement teams a better sense of how production works and why certain business decisions are made. One of my supplier visits really helped me to better understand a vendor at the capacity utilization level, which I then used as a point during negotiation.
2. Preparing to negotiate
After gathering all the relevant details, the next phase is to prepare your strategy before going in for negotiations.
Consider the following:
Compare your internal demand forecast to supplier capacity. This is an important part of negotiation as it sets the contract’s timeline and opens the door for businesses to find savings through potentially larger volume commitments. For instance, based on our volume outlook, I had an agreement for five years with one of our critical suppliers to secure the capacity and get the best possible rate. It really helped the organization sail smoothly irrespective of market turmoil.
Decide on your price range. After doing your market research, decide what will be your anchor quote (or starting offer) and your extreme offer. If the supplier’s price range overlaps, it will set up the Zone of Possible Agreement.
Prioritize your asks. Organize your negotiating terms based on “must-have” and “nice to have” items. Similarly, try to make a list of what you think your suppliers’ business priorities are to game out potential gives and takes during negotiation.
Know your BATNA. Before entering negotiations, make sure you have a grasp of your Best Alternative to Negotiated Agreement in case talks reach an impasse. Could you get a better rate or a change in component specificaiton with another supplier? If so, use that to your advantage in negotiations.
The final phase is to dive into the actual negotiation by using all the information you’ve gathered to try and secure the best possible agreement.
Some final tips:
Understand where you’re aligned and where you’re not. Organize the conversation so you can focus on the main points where you agree and where you disagree. This helps to avoid discussions on peripheral items which are insignificant. It also helps to build positive connection as both sides feel like they’re making progress on agreed points.
Ask about price discrepancies. When I was in the process of negotiating with my board vendor, they made a claim for an input material cost increase of 15%. However, the global indices went up by 6% only for the same period. After much discussion, I learned more about the other cost pressures the vendor was facing and it helped us reach a consensus.
Look for alternative solutions. A supplier once asked me to revise payment terms as she was going through a capital crunch. However, our company has standard terms and it wasn’t possible for me to make an exception. Instead, I found a solution by extending the invoicing discount facility to help her out for the interim period. In another case, I increased the advance order time so that supplier could better plan production and minimize excess inventory.
Avoid renegotiating. Make sure you didn’t overlook any final requests or discussion points before closing out negotiations. Reopening talks in the future could leave you at a disadvantage and put already negotiated clauses in jeopardy.
No matter what, the most important thing for a successful negotiation is to have a win-win mindset. A winner-takes-all approach only offers short-term rewards and may erode important supplier relationships.
Praveen Kumar Soni is a procurement manager at Colgate-Palmolive.
采购团队需要对内部和外部环境进行 360 度全方位观察，以便他们能够发现潜在机会并协商更低的价格。 但收集数据并不仅仅意味着查看电子表格——例如，实际访问供应商网站有时甚至比数字列表更有用。
跟踪供应商行业内的材料价格。 有几种方法可以解决这个问题。 例如，包装通常会印有材料制造商的名称。 这可以让您从供应商那里更好地了解供应商的成本。 另一种方法是使用拥有所有行业细分市场报告的外部咨询公司进行访问。
了解供应商的财务和业务计划。 关键供应商的中断会对生产和收入产生巨大影响。 例如，由于“一次性”中断，惠而浦第四季度的产量下降了 5%，净销售额下降了 15.3%。 采购团队应该对供应商的业务状况有强烈的了解，以便在中断发生之前发现并防止中断。
了解供应商的流程。 访问供应商站点可以让采购团队更好地了解生产的运作方式以及做出某些业务决策的原因。 我的一次供应商访问确实帮助我在产能利用率水平上更好地了解供应商，然后我在谈判中将其用作一个要点。
将您的内部需求预测与供应商能力进行比较。 这是谈判的重要组成部分，因为它设定了合同的时间表，并为企业打开了通过潜在的更大数量承诺来节省成本的大门。 例如，根据我们的销量前景，我与我们的一个关键供应商达成了五年的协议，以确保产能并获得尽可能好的价格。 无论市场动荡如何，它确实帮助组织顺利航行。
确定您的价格范围。 完成市场调查后，决定什么是你的锚定报价（或起始报价）和你的极端报价。 如果供应商的价格范围重叠，则会设置可能协议区。
优先考虑您的要求。 根据“必备”和“最好有”项目组织谈判条款。 同样，尝试列出您认为供应商的业务优先事项是什么，以便在谈判过程中考虑潜在的让步和索取。
了解您的 BATNA。 在开始谈判之前，请确保您了解谈判协议的最佳替代方案，以防谈判陷入僵局。 您能否通过其他供应商获得更好的价格或更改组件规格？ 如果是这样，请在谈判中利用这一优势。
了解您在哪里对齐，在哪里不对齐。 组织对话，以便您可以专注于您同意和不同意的要点。 这有助于避免讨论无关紧要的外围项目。 它还有助于建立积极的联系，因为双方都觉得他们在商定的要点上取得了进展。
询问价格差异。 当我在与我的电路板供应商谈判时，他们要求将输入材料成本增加 15%。 然而，全球指数同期仅上涨了 6%。 经过多次讨论，我了解到更多供应商面临的其他成本压力，这有助于我们达成共识。
寻找替代解决方案。 一位供应商在经历资金紧缩时曾要求我修改付款条件。 但是，我们公司有标准条款，我不可能破例。 相反，我找到了一个解决方案，即延长fp折扣功能以帮助她度过过渡期。 在另一个案例中，我增加了提前订货时间，以便供应商可以更好地计划生产并最大限度地减少过剩库存。
避免重新谈判。 在结束谈判之前，请确保您没有忽略任何最终请求或讨论要点。 未来重新开始谈判可能会让你处于不利地位，并使已经谈判的条款处于危险之中。
作者Praveen Kumar Soni 是 Colgate-Palmolive 的采购经理。
A step-by-step guide to successful supplier negotiations