3 Rules For Effective Supplier Negotiations

Supplier negotiation is part science and part art. It's a skill that all buyers need to develop to achieve the best terms and establish a good relationship with their suppliers.

Negotiating well isn’t just about talking eloquently – it requires planning, choosing the right team, and knowing what you want to achieve.

Here are the three most important things to do to negotiate well with your suppliers.

Rule 1: Establishing a Clear Strategy

First, develop a strategy with a specific end goal. Failure to plan your negotiation carefully with a clear goal and a set of right actions will lead to accomplishing very little – especially if it’s a complex negotiation that involves significant creativity and strategic planning. Even seasoned negotiators often need strategies for mission-critical and complicated negotiations.

For instance, in a large chemical distribution engagement that GEP worked on, the scale of the negotiation required splitting the efforts into several deal-flow phases based on the potential negotiation rounds. Ideally, large negotiations would be managed by a team of senior leaders and a consultant SME, while the regional buyers would handle medium and small negotiations with support from a consultant analyst. The buyers were allocated to the negotiations based on priority and buyer experience.

Also Read: Tip the Scales – Creating Leverage in Tough Supplier Negotiations

Rule 2: Selecting a Suitable Team

Having the right team set up for the task is essential. Make sure you have designated the right people to carry out each of the following functions:

Lead Communicator:

Communicate team strategy, explain supplier issues, clarify client rationale for cost reductions, develop service options and trade-offs.

Supplier Liaison:

Maintain relationships with suppliers, spot new opportunities and deal with technical issues to ensure compliance.

Session Coordinator :

Ensure that meetings move towards key outcomes, orient the team towards big-picture objectives and ensure agreements and actions are met during the meeting. And finally see that the team has up-to-date data on implications of supplier offers during negotiations.

Rule 3: Creating a Common Vision

The final, critical piece to a successful negotiation is to create a common vision, both internally and with the supply base. The key to establishing a shared mission is to establish a clear objective, determine the baseline and prepare plans and alternatives.

Finally, develop messaging to include the Most Desired Outcomes (MDO), Least Acceptable Agreements (LAA), and Best Alternatives to a Negotiated Agreement (BATNA). Messaging will help condition the suppliers and the internal stakeholders to be receptive to the task at hand.

In Summary

Factors such the availability of the market, the small number of suppliers of critical materials, materials availability, suppliers’ financial health, and your relationship with vendors will have a large impact on the success of supplier negotiations. But, even if these factors are working in your favor, only a well-prepared and well-organized negotiation event will succeed. These recommendations will help your procurement team organize negotiations efficiently.

Download GEP’s white paper to get detailed insights on mastering the art of supplier negotiations.