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Negotiating with Suppliers

Updated on November 6, 2014

Why Negotiate

In most medium sized and large organisations there is a person dedicated to negotiating with suppliers. It may be a specific purchasing person, the accountant or maybe one of the managers.

But in the case of a sole trader or a business that just has a couple of people, the ordering may get done by one person or shared around, but in many cases, there will be no-one that does the negotiating at all.

Everyone in business knows that it is important to manage cash flow and get the best deals that you can, but many people still make simple mistakes when making purchasing and negotiating decisions.

New Suppliers

When it comes to working with a new supplier, it is very important to make certain that you are aware of as much information as possible. Not only do you need to know the price of the goods or services, you also need to know the delivery terms and any associated costs, the payment terms and whether there is any after sales service. Do they have a sales rep in your area that can call in periodically to tell you about the latest deals and ensure you are satisfied with the service?

Do an annual review of the existing ones.

It is also important to carry out annual reviews of all of your existing suppliers, especially if you have become very friendly with them. Just because you are mates doesn’t mean you are getting mates rates. Check your existing suppliers with as much scrutiny as you would check any new ones, and don’t be afraid to ask other business people that you know are also using them, if they have been satisfied over the past year.

How often do you review your supplier agreements?

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Conduct whole-life costing

When conducting any type of negotiation it is crucial to make certain that you are talking with the decision maker. Don’t let them refer you to someone in the business that can’t give you the best price or answer your questions. IF they don’t want to talk to you to win or keep your business then you should be thinking very carefully about giving them your money.

For equipment purchases it is important to conduct proper “whole life costing.” In the case of a printer and copier, the cost to purchase or rent might be very low, but the toner or copy costs might be dearer than other suppliers and so might the call-out repair costs. Carefully add up all expenses for the proposed life of the good or service and then compare the whole life cost against any alternatives.

Risk manage your suppliers

If you are negotiating for items that you will be needing all the time on very short notice, don’t be afraid to ask the supplier to come and visit their warehouse or shop to satisfy yourself that they are going to be able to supply you when you need it.

If there is a risk that your suppliers could have a shortage, create a risk management strategy where you have a backup supplier if needed. If there is no alternative then consider buying stock in advance and have your supplier store it so you can always call on when you need it.

Negotiate on your own terms.

If the negotiations you need to conduct are important to your business continuing to operate, then arrange to have them at a time that suits you. If you try and conduct them when tired or stressed you run the risk of agreeing to pay more and get less than you should.

And always be aware of what your line in the sand is – and don’t cross it. If you can only afford to pay a certain amount, need it in two not three days, or anything else, then don’t agree with supplier terms that will put your own business at a disadvantage.

If the suppliers terms are not ones that you can accommodate then there are still a couple of potions. The first is to consider a strategic alliance with another business and approach the supplier together. They will be less likely to turn down two or more united businesses terms than a single business.

The second is to engage an independent negotiator to manage your supplier arrangements.

Remember, suppliers are in business to make money, just like you are and just like you they need customers. Don’t be afraid to negotiate for what you want and be prepared to walk away of you can’t get the deal that you want.

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