How To Negotiate With Your Suppliers

How do you drive win-win solutions with your suppliers?

Supply Chain Negotiation
Supply Chain Negotiation. Getty Images

As the adage goes, "Some days you're the windshield and some days you're the bug." So it goes with supplier negotiations.  

Some days you're the customer. And some days you're the supplier.  

When you're the customer, how do you best negotiate with your supplier? Well, one tactic is to remember those days when you were the bug - I mean, supplier - and remember what worked and did not work then. How did your customers negotiate with you?

After documenting the effective tools that your customers used when you were the supplier, can you figure out how your customers got what they wanted from you? How did a customer convince you to lower your price? Or to increase your quality without increasing your price? Or to deliver on time consistently?  

If you are a seasoned supply chain pro, you probably realize that there are many different routes to take when negotiating with your suppliers.  

Depending on the situation...

...You can be forceful - as in, "Lower your prices or I'm dropping you as a supplier."

...You can be friendly - "You know that you've always been my favorite supplier. Why don't you lower your prices for old times sake?"

...You can be the my-hands-are-tied negotiator - "I, personally, feel like you have the right to charge whatever prices you want to charge. But my hands are tied, you see. Management is telling me that I have to come to you to ask for lower pricing."

...You can plead for mercy - "If you don't give me 5% price savings across the board, I'm going to get fired." (I've never seen this tact work, by the way.)

...You can be professional - "Every three years, we go to to RFQ to drive cost savings, quality commitments, and supplier innovation."

There is no one-size-fits-all approach.

Many negotiators will start with the "professional" approach, but anyone with any experience will tell you that - down in the trenches of supplier relationship management - every supplier is different. And sometimes you have to be forceful and sometimes you have to be friendly and sometimes you just have to not budge and claim your hands are tied.

But to go back to the question of being the windshield or the bug - what are some of the tactics that were used on you when you were the supplier and your customers negotiated with you? Did you respond to the professional approach? Did you want to help out a customer because they were your buddies? Did you cave to force?

Or was it different with each interaction?

Probably different, yes? There's no hard and fast rule that worked for you. And there's probably no hard and fast rule that's going to work with your suppliers.

But here are the basics that hold true:

Leverage

At the end of the day, the party with the leverage is going to drive the result. If your supplier has a proprietary component that you can only get from that supplier, you may have to use the "friendly" or "plead-for-mercy" technique. If you have the leverage in a supplier negotiation, you're generally going to get what you want using the "professional" approach.

Transparency

Do you know what your suppliers are paying for their raw materials and components? Do your suppliers know what your selling prices to your customers are? Often, when both parties open their books, a negotiated solution becomes obvious. The gaps in margins and cost assumptions drive a solution.

Win-Win

At the end of the day, if the negotiated solution isn't a win-win, then the relationship is destined for more stress. If you aren't getting the purchase price you need with the quality and on-time delivery that you need - your suppliers aren't going to get long term business.

By using the right approach and understanding the balance between leverage and transparency, you can drive a win-win solution that works for all parties involved. And maybe for one day, the windshield and bug can live in harmony.