CIPS Knowledge BYTES

Negotiating with Suppliers

Selecting the right suppliers will make a major difference to the cost and quality of your organisations products and services. The negotiation process is one of the integral phases to ensure the right supplier is chosen.

When negotiating with suppliers it is important that you dont just concentrate on a single issue, price. You will need to consider issues such as quality of service and product, reliability of performance, flexibility in meeting your requirements. Negotiating the right deal with your supplier does not necessarily mean getting what you want at the cheapest possible price Many P&SM (Purchasing & Supply Management) professionals would consider a good deal as one that meets all their requirements. But there are many factors to consider such as do you like what the potential supplier is offering, do you want to do business with this potential supplier, if so you will need to devise a suitable approach to the negotiation that will help foster a good working relationship. Finally, when undertaking negotiations with suppliers, it is worth remembering that the best deals are often the ones that leave both sides happy with the agreement achieved. However, there will always be a place within the organisations purchasing portfolio where this type of approach may well not be suitable.

Establish Your Priorities.

Remember that price is not the only consideration A more expensive supplier who meets your other priorities such as product and service quality and responsiveness could represent better value for money For some products and services, total lifecycle cost is more important than the initial purchase price Flexible payment terms, such as extended credit, are important if you face cash-flow constraints. A supplier who can offer a long-term fixed price may well help your planning. You may want flexibility: for example, low minimum orders and immediate delivery Depending if your buying internationally, you will need to consider the type of transport you need Some suppliers may offer stockholding services and Just In Time delivery, this may significantly reduce your inventory costs and reduce risk of obsolescence. Assess the impact on your business of late delivery or poor product and service quality Review the production capacity of your supplier to ensure they are flexible to meet your requirements and can cope with any potential increase in demand or change of requirements in the future Does the supplier respond to your requests on time, resolve issues on time, attends meetings promptly etc If you have several suppliers providing one product it may be worth considering selecting a supplier with the capacity and capability of meeting all requirements You may want to consider the type and style of customer interface you require, are they customer focused, respond to queries on time? Explore there processes for document management, does it improve effectiveness and efficiency? Make sure you adopt the right negotiating approach, distributive or integrative How you can extract market intelligence and information regarding technical developments? Consider incentive schemes Does the suppliers ethos supplement your own organisations values?

Clarify what your delivery requirements are

Think how important reliability is

Look for a supplier who can manage the administrative burden

Consider how important the long term relationship will be Consider how your choice of supplier can affect your organisations reputation

When you purchase a product or service, an element of your organisations reputation is at risk.

Tel +44(0)1780 756777 Fax +44(0)1780 751610 Email ckw@cips.org Web www.cips.org

JAN 06

Negotiating with Suppliers

CIPS Knowledge BYTES

Negotiating the deal

Review your negotiating position

Understand how your organisation and the product you require fit with the suppliers portfolio (Bensaux, Kraljic matrix) Make sure everyone involved in the negotiation on your side knows what the objectives and priorities are Strengthen your negotiating position by introducing or trying to find alternatives, for example, more suppliers. Aim to identify their priorities, for example, disposing of old stock, above average return from the business, spare production capacity, or generating cashflow Ask yourself how important your business is to them (Bensaux analysis) Try to identify concessions you can offer that will cost you little but which the supplier will value. For example, if you have strong cashflow, you may be in a position to offer prompt payment. Do you offer a strong consumer brand? During the negotiation, confirm each key point that you agree. Try to negotiate the agreement on price before you are too committed to the deal, even if you have to renegotiate later as other details change For major negotiations, keep a written record of key points as you agree them. Consider signing heads of terms before negotiating final deals. Define the type of approach (Distributive, Integrative) that will be best to help you achieve your objective Avoid undermining your own position by making concessions from the start.Ask the supplier to make a concession for every concession you make Keep calm. Be aware of tactics they may be using such as creating artificial deadlines or valuing a concession higher than it true value Pay close attention to body language, use influencing, empathy and sincerity to aid in influencing. This will depend on your objectives and the type of purchase, is it a one off buy, a one issue purchase or will you be seeking something more sustainable from your supplier? Approach the negotiation with a positive mind, use positive language, communication and body language. Recognise when you are squeezing the supplier too hard.Your business may become less valuable to them, and they may look for opportunities to cut corners.

We have examined a number of key issues that will aid in ensuring that you obtain the best result for your company when engaged in negotiations.This article has demonstrated that although actually negotiating and doing the deal is exciting, it is vital that the key activities such as, planning and preparation are an integral element of the overall process in ensuring that you do not have to rely on your Best Alternative To a Negotiated Agreement (BATNA)

Try to find out what the suppliers position is

Set out the key points to be negotiated

Take a firm but fair approach to negotiation

Aim for the right solution for all parties concerned

JAN 06

Tel +44(0)1780 756777 Fax +44(0)1780 751610 Email ckw@cips.org Web www.cips.org