In an ideal world, the proposal you receive from your vendors and suppliers will match your desired budget, goals, and expectations. But that’s very rarely the case.
Just because the deal’s terms have been written down, it doesn’t mean they are set in stone. Every proposal – regardless if it’s satisfactory or not according to your vision – has the potential for improvement. Receiving an SLA (Service-Level Agreement), price quote, and a timeline is just the beginning of your vendor and supplier negotiation process.
In order to reach a satisfactory deal, you first need to know how to approach and communicate in your vendor and supplier negotiation. On this page we’ve outlined the Do:s and Don’t:s of vendor and supplier negotiation to help you land the best deal with them.
Strategies for Vendor & Supplier negotiations
Do: Be Prepared
One of the most important steps, if not the most important, in a vendor and supplier negotiation process is the preparation. This includes researching competitor vendors to get a sense for how the specific product or service compares, what your vendors and suppliers overhead costs are, and what price they are charging for their product/service.
Don’t: Accept the first offer
By accepting the first offer you’re indicating that you are satisfied with the quoted price and terms, thereby closing the door to a potentially fruitful supplier and vendor negotiation. Instead, by rejecting the first offer and making a fact-based counter-offer based on the research you did in the preparation stage, you’ll be able to initiate the supplier and vendor negotiation.
But refusing an offer in a constructive way without sounding like you’re only trying to force the price down can be tricky. Take your time preparing both data and facts supporting your case, as well as how you phrase the response in a compelling way.
Do: Always have an alternative
A big part of being prepared is having a specific alternative vendor or supplier in mind. If you’ve done your homework correctly you will in most likelihood have found at least one viable alternative to your first choice of vendor/supplier. Mention your alternative in the supplier and vendor negotiation to make them aware that you have viable options other than them. The risk of losing your business often leads them to be more flexible and opening up to consider your requests.
Don’t: Limit the vendor/supplier negotiation to price
Even though price is a big factor of a supplier and vendor negotiation, focusing solely on it might damage the deal’s overall value. In a negotiation, most everything is usually up for discussion such as payment terms, timeline, bulk discounts and possible incentives.
Do: Show empathy towards the vendor
Showing empathy is a basic social skill and one of the most valuable supplier/vendor negotiation skills. By showing empathy, it also makes it more likely to receive it. Having a good sense of the vendor/suppliers position and making them aware that you are aware and understand their challenges and underlying costs will in most cases make them extend the same courtesy to you.
The opposite applies as well. If the vendor doesn’t feel you actually care or try to make the effort to understand, they will be more likely to pin down your requests and arguments as unfair.
Don’t: Forget about long-term aspects
In a lot of cases, the relationship with a vendor or supplier extends way beyond a single purchase. By establishing a long-lasting relationship with a vendor it can save you both time and the hassle of having to repeat the research in preparation for your supplier/vendor negotiation strategy.
In other words, it’s important to structure a vendor/supplier negotiation strategy that doesn’t solely focus on the deal you strike today, but for the long-term deals you might want in the near future.
The three steps of a vendor/supplier negotiation process
The vendor/supplier negotiation process can (loosely) be divided into three steps:
Step 1: The Preparation
The preparation for the vendor/supplier negotiation process is undoubtedly the most important step. The negotiation is usually not about who the best negotiator is, there’s only so many negotiation techniques one can use. It usually boils down to who’s the best prepared, possess the best information, and have the facts and data to back up their arguments.
Step 2: The Negotiation Meeting
This is the actual negotiation; sitting down with the supplier/vendor to discuss the terms and conditions of the contract and your partnership. The outcome of the negotiation will in a lot of cases already been decided before the meeting has even started, the winner usually the one who’s prepared the most. So it bears to repeat: don’t enter a negotiation without having prepared for it. If the vendor/supplier brings up a subject you’ve forgotten or haven’t had time to prepare for, simply mention that you need to get back to them on the issue.
Step 3: The Summarising
Lastly, to summarise all the discussed points. This is a very important step since you need to get the vendor/suppliers affirmation to all the points previously discussed. It’s usually divided into two categories:
- Points agreed upon
- Points you or the vendor/supplier need to get back to each other to discuss further
Some points to summarise include payment terms, contract volume, timeline, when the contract will begin, and price for the contract.
Enhance your price negotiation with a supplier/vendor with Prognos
As you’ve probably noticed, one of the vital keys to a successful vendor/supplier negotiation strategy boils down to preparation.
Prognos is an interactive platform giving you access to continuously updated indice reports and graphs on raw materials, components, labour and manufacturing costs, taxes and transport costs, and currencies. We give you access to the cost data you need in order to get the most out of your suppliers with data tailored to the price negotiation with your supplier.
How to prepare negotiations with suppliers?
- Establish objectives and goals that are important to you such as price, value for money, delivery and payment terms, timeline, quality, etc.
- Research your supplier. Do your homework and find out everything there is to know about your supplier to gain all potential leverage in the actual negotiation.
- Prepare fact-based arguments. Facts and data weigh a lot heavier than gut feeling and emotionally constructed arguments. Find out all there is to know about the specific product/service you are in demand off and use the information to construct fact-based arguments in preparation for the discussion.
- Develop a negotiating strategy. Having a distinct strategy helps you set clear goals and how to achieve them.
- Prepare a negotiating team or a choose the person to do the actual negotiating. Ensure they got the right skills and have the data and facts available to back up the arguments.
How to negotiate price with a vendor?
- Prepare: Research everything there is to know about your vendors product/service, research their competitors prices and products, find alternative vendors, etc.
- Identify your price goals: Establish what prices you want to achieve through the negotiation and base all your arguments around it.
- Decide on a negotiation strategy: Find out what negotiation strategy that fits your situation on how to reach your price goals the best.
- Prepare arguments: Formulate fact-based arguments based on previous research to support your price demands.
- Prepare a trading plan: Establish a trading plan on how much the product/service is reasonable to cost, identify the price range you’re willing to work within, max-price, min-price, etc.
What is indirect spend?
Indirect spend is the purchase of goods and services NOT DIRECTLY incorporated in the manufacturing of a product. E.g. computers, office supplies, furniture, equipment, etc.