Tips for Successful Supplier Negotiations
To succeed in supplier negotiations, you need verifiable benchmarks, accurate global costs, and digital models of supplier capabilities.
In the negotiation process, transparency, mutual understanding, and an appreciation of your supplier’s goals goes a long way towards win-win long-term relationship building.
This video discusses common confrontational negotiation strategies, and suggests strategies for promoting a collaborative approach aimed at mutual success and cost savings.
What Makes a Vendor Negotiation Successful?
For successful vendor negotiations, fact-based discussions go a long way toward removing emotion from the negotiation process.
To set up a successful supplier negotiation strategy, you need three things:
1) Verifiable benchmarks such as fact-based should-costs that are based on your unique designs, manufacturing processes, and workflows.
2) Accurate materials costs and labor rates around the world. If you could be getting a lower price by manufacturing in a different region, you want procurement to know that before you start the negotiation process.
3) Digital models of your supplier’s capabilities. If you can model their machines, processes, and workflows, you have a higher chance of seeing cost savings together and improving your bottom line.
Use the following tips and strategies to strengthen your supplier relationships and work together to reduce costs.
Good Vendor Relationships are a Win-Win
Stress the importance of transparency in supplier relationships, for achieving mutual success. Sharing business information, such as cycle times, margins, and workflows, helps all stakeholders understand where the first offer is coming from, so they can plan for successful negotiations and that build positive long-term relationships.
Recognize valued suppliers. When negotiating vendor contracts, partners that feel appreciated are more willing to negotiate contract terms than a vendor who is primarily concerned with losing an account. In vendor contract negotiations, see if you can understand your supplier’s goals and identify commonalities. For example, each company may want to expand its presence in sustainable manufacturing. In this case, the messaging around the agreement may be just as important as the contract renewal.
Lastly, make it clear you want to help your supplier succeed. Use your digital insights into materials and machine trade-offs to help both you and your vendor cut costs and improve your bottom line.
What Not to Say in Vendor Negotiation
When you’re talking to business owners or contract managers, don’t say: “You’re charging us too much” or “Your material rates are too high!” This negotiation strategy pits stakeholders against each other and poisons long-term relationships.
Instead, try saying: “Let’s look at this part. I want to understand the processes that built up to the final cost.” or “I show X as the average price per pound for this stock size. Does this align with what you’re paying?”
The goal of a contract negotiation is not just to achieve cost savings, but to build a long-term relationship with your service providers that all stakeholders see as successful.
To learn how aPriori can help you optimize supplier negotiations, download the guide to should-cost analysis and negotiation.