Negotiations are not about winning or losing but creating value and building relationships with your suppliers. Therefore, a long-term perspective and a focus on mutual benefits should guide your conversations with suppliers. Try to put yourself in their shoes and understand what is important to them. The aim is not for each party to get precisely what they want or to compromise too much. Genuine win-win negotiations are designed for the long term and offer balanced success for both sides over time.
Four steps to successful and efficient negotiations with suppliers
In our many years of experience, the following four steps have proven to be particularly effective:
1) Know all the facts
Create a comprehensive factual basis before you negotiate with a supplier. Overall, this means you need to answer the following questions: What do your stakeholders want? What impact will the introduction of new products or entry into new markets have? How will this affect your supply base?
You should have an estimated expenditure and profit margins for the respective suppliers ready for the negotiations. In addition, you should understand the market dynamics and their drivers, evaluate the current and future supply and demand situation in the procurement market, including the impact of supplier capacity and investment, cost structures with margin expectations, and have an idea of how your competitors and other suppliers are positioning themselves.
2) Price/Cost is not everything
If you negotiate a lower price, expect your supplier to reject the offer. Remember that in addition to price, you can negotiate other essential aspects that will help reduce your overall spending, such as faster delivery of goods to your business at no extra cost. This will save you additional storage costs.
3) Record and execute in written form
You should record the results of each negotiation in writing and agree on the minutes with your supplier to avoid misunderstandings. Information is easily lost, especially in virtual negotiations. Ensure all details for the conclusion and implementation of the deal are clarified. In addition, define a clear implementation plan to ensure that all internal parties are committed to the deal’s success.
4) Evaluation and assessment
Leave nothing to chance and check performance frequently. The earlier you identify problems, the better you can avoid conflicts. Define key performance indicators in the contract, such as costs, delivery performance, quality level, and customer care, which form the basis for discussions. They provide a good framework for regular contract reviews. Also, keep an eye on your own performance indicators. These include compliance with payment terms and consistent forecasts.
What has changed significantly in recent years differs from the basis for successful negotiations with suppliers; their application has become more complex. Supply chains are more volatile and increasingly affected by bottlenecks. Disruptions due to geopolitical crises or extreme weather are almost daily, and changing trade patterns, sanctions, and regulatory requirements are making life increasingly difficult for procurement professionals.
All of this requires a change of mindset in procurement. You need to be flexible in your approach, manage an increasing number of complex negotiations efficiently, get creative, and spend more time researching alternative options. The four steps outlined above provide an excellent basis for successfully mastering these challenges.
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