Procurement strategy

How to succeed in supplier negotiations?

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Olivier Audino
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Procurement strategy

Negotiation tactics with suppliers

We all know that. Commercial negotiation, including the supplier negotiation, is an essential skill in the business world. It is useful for businesses looking to maximize their business benefits. A good negotiation with suppliers can make it possible to obtain competitive prices, favorable payment terms and better quality of products or services. Indeed, the benefits expected from such negotiations are no longer solely financial in nature. Through this process, the procurement function also aims to seek a positive impact on the company's entire ecosystem. In this article, discover some of the tactics of Customer supplier negotiation effective ones that can help you reach your goals and strengthen your relationships with your suppliers.

supplier negotiations

Supplier negotiation: definition and operation

The supplier negotiation is a process by which a company enters into discussions with its suppliers to reach a commercial agreement that is satisfactory for both parties. We also talk about Win win negotiation. The supplier negotiation the most rewarding is the one that results in a win-win agreement. It is often an iterative process that involves numerous rounds of negotiations until an agreement satisfactory to both parties is reached.

The main objective of the negotiation with suppliers is to obtain the best terms and conditions in terms of prices, delivery times, payment terms and quality of products or services, while maintaining a solid relationship with suppliers. Ultimately, this can contribute to improving the company's profitability and strengthening its competitive position in the market.

The operation of the negotiation of suppliers may vary by business, but generally, it follows the following key steps:

  • Preparation: before starting negotiations, the company must prepare by defining its objectives, identifying its needs and analyzing the market and competitors. It is also important to gather the necessary information about suppliers, such as their offers, reputation, references, etc.
  • Initial contact: the company contacts pre-selected suppliers to express its interest and establish initial communication. This step may include requests for additional information, requests for quotes, or invitations to participate in a tendering process.
  • Analysis of offers: the company evaluates the various offers received from suppliers according to criteria, such as price, quality, delivery times, payment terms, etc. It can also conduct preliminary negotiations with some suppliers for clarifications or to discuss proposed terms.
  • The negotiation itself: once the offers have been analyzed, the company enters a phase of thorough negotiation with suppliers restrained. This phase involves discussions on terms and conditions, exchanges of arguments and counter-arguments, proposals for improvements, requests for reciprocal concessions, etc.
  • Finalization of the agreement: when the parties reach a satisfactory agreement, they formalize the terms agreed upon in a contract or other legal document. This makes it possible to clarify the obligations of each party, the details of the commercial relationship and the remedies in the event of a dispute.
  • Monitoring and evaluation: the supplier negotiation does not end with the finalization of the agreement. It is an ongoing activity that involves constant monitoring, as market conditions, business needs and supplier capabilities may change over time. It is therefore essential to maintain open communication and to update agreements as circumstances change. A regular assessment of the company's performance should also be carried out to ensure compliance with commitments and to take corrective measures if necessary.
successful negotiations with suppliers

Tips for successful negotiations with suppliers

Like any commercial negotiation, the negotiation with suppliers is an art. It is based on a mixture of techniques and tactics that make it possible to get the most out of exchanges. Here are some tips to consider in order to negotiate well with suppliers:

Don't overlook the preparation stage

As mentioned above, it is essential to be prepared by doing a thorough research on the supplier and the market before starting any negotiation with suppliers. Take the time to gather information on suppliers in order to identify their strengths and weaknesses. Likewise, assess their strategic importance in measuring the bargaining power of suppliers. If you are a large customer of the supplier or if you have the possibility of turning to another company, of course, you have room for maneuver. If, on the other hand, you are dependent on the supplier, you have little advantage in the negotiation.

In addition, find out about market conditions. Gather information on current prices, competitive offers, and quality standards. The more informed you are, the more effectively you will be able to defend your interests.

Set clear goals

Before you sit down at the table of supplier negotiation, clearly define your goals and the limits you are ready to accept. Do you want to get price cuts, longer payment terms, more flexible delivery terms? Be specific in your expectations and determine your room for manoeuvre.

Prepare a pitch

One Customer supplier negotiation Successful is not exclusively played out during exchanges. Good preparation is essential to put all the chances on your side. Once you think you've gathered all the information you need, sort it out to build a coherent case. You can write arguments by categories: arguments against the service provider, arguments concerning the company, arguments related to competition, arguments related to the context or the situation, etc.

Establish a relationship of trust

A successful negotiation is based on a solid collaborative relationship with the supplier. Instead of viewing negotiation as a showdown, try to work together to find solutions that are mutually beneficial. Be empathetic and show interest in your supplier's concerns. A trusting relationship can facilitate communication and lead to more favorable agreements for both parties.

Adopt the right mindset

One supplier negotiation effective requires solid preparation and good conditioning. It presupposes a winning mindset. The more convinced you are of the positive outcome of a negotiation, the higher your chances will be. Conversely, if you are pessimistic about the outcome of discussions, your chances will also be reduced.

Highlight your added values

During the negotiation with the supplier, don't just focus on the price. Highlight the values or benefits you can bring to them, such as larger orders, a long-term business relationship, or collaboration to develop new products. By showing the value you bring to the supplier, you increase your chances of negotiating more favourable terms.

Be ready to bargain

The negotiation with suppliers is a balance game where each party seeks to maximize their interests. Be ready to bargain and make concessions without compromising your main goals. Identify areas where you are ready to give in and where you need to maintain a firm position.

Explore other options

Don't be afraid to explore other options if you can't reach a satisfactory agreement with a particular provider. Identify other potential suppliers or look at opportunities to outsource certain activities. Use these alternatives as leverage when supplier negotiations. The possibility of switching to another supplier may encourage your interlocutor to make compromises in order not to lose your business.

Identify negotiation levers other than price

If prices are at the heart of any commercial negotiation, identify other levers to move the negotiation forward: lower delivery costs, cheaper payment terms, accelerated deliveries, etc.

Be courteous

Although it is advisable to remain optimistic, the mistake not to make when supplier negotiation is to seem too sure. Always stay professional, neutral, and courteous. A positive attitude helps to relax the atmosphere and promote fruitful exchanges.

Avoid excessive demands

During the negotiations with suppliers, also avoid unrealistic requests. Your supplier will see a lack of professionalism on your part. Of course, he will not respond favorably to such a request. He may think that you are wasting his time. Worse, he may end your partnership and turn to other businesses that he considers to be more serious.

tactics for negotiating

What are the key tactics for negotiating well with suppliers?

have you thwarted the tactics of negotiation of suppliers ?

There are many keys to a successful negotiation with suppliers : prepare carefully, learn a whole range of techniques, be able to think quickly, communicate convincingly, etc... Pugnacity is one of the most important.

Indeed, pugnacity is necessary, because suppliers who have a perfect command of negotiation techniques undermine the resilience of buyers.

Here are some negotiation tactics used by suppliers against which pugnacity will be your best ally!

  1. The “deaf ear” tactic

When you're negotiating the terms of a contract or trying to get a better rate, your provider may pretend not to hear you. It is particularly easy for suppliers to act this way during an email negotiation (which is not recommended for an important transaction).

  1. The diversion

When negotiating a price cut, a common tactic for suppliers is to divert your attention by talking about another business issue.

For example, a supplier may say, “I cannot discuss the price until I know the terms of our arrangement and, therefore, the conditions that will result from it.”

  1. The postpone tactic

When trying to get a price cut or better terms, you often hear the supplier say, “I gave you the best price/terms that I am allowed to give. I'll have to check with management to see if we can do anything more.”

By implying that there is no longer any possibility of negotiation, the supplier encourages you to stop the haggling, in order to no longer raise the issue before signing the order form or contract.

Suppliers know that bad buyers only ask for better rates or better terms once. Suppliers are well aware that they will win the contract in most cases without giving in to the buyers. Prove that you are an excellent negotiator, be persistent, claim again, as many times as necessary! This will demonstrate the importance of what you want and are more likely to get it.

Two types of negotiations are possible depending on the type of purchase

Depending on the type of purchase, it is possible to carry out supplier negotiations differently:

For direct purchases

Direct purchases are the purchase of goods that are critical to your business. The stakes around these acquisitions are high and can represent a high cost. The negotiation with a supplier for a direct purchase is made in the majority of cases in terms of economies of scale. You can negotiate a lower unit price for larger volumes. It is crucial to maintain a good relationship with “direct” suppliers in order to have more chances of obtaining concessions or preferential prices.

For indirect purchases

As the name suggests, indirect purchasing includes goods or services that are not directly related to your core business. These are non-strategic purchases that have a low cost. The supplier negotiation for this type of purchase is delicate. For a spot purchase, it is above all an opportunity collaboration. Each party will try to get satisfactory margins. For recurring purchases, a diplomatic relationship must be maintained. Start with very reasonable price reduction requests and, depending on the evolution of the partnership, ask for additional price concessions.

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