There would be no such thing as vendor negotiation if prices were set in stone. Yet decisions in government, international relations, speculation, and supply and demand shape market trends and price fluctuations, requiring procurement professionals in the manufacturing industry to develop and implement vital vendor negotiation techniques.
For those involved in the procurement of manufacturing supplies, stepping into a negotiation with a vendor should ultimately lead to the primary goal of cost savings. But to get there, there are several challenges to overcome and techniques to implement.
Procurement isn’t like other transactional industries. It isn’t about winners and losers. Instead, to reap the many benefits, including long-term savings, it is important to establish long-lasting, sincere relationships that benefit both parties.
This article expands upon common vendor negotiation challenges and vendor negotiation techniques to increase your savings.
Common Vendor Negotiation Challenges
Negotiating as a general practice isn’t like solving a math problem or conducting a science experiment. It is more of a communications practice that utilizes conflict management styles, which depend upon the value of the relationship.
The negotiation landscape is complex and imperfect. Common vendor negotiation pitfalls include but are not limited to the following:
You might be of the mindset that “time is money,” but it is never recommended to close a deal to meet a time constraint. Closing in a hurry can cause more damage to a company if the product and supplier aren’t appropriately analyzed.
Lack of Preparation
Performing thorough background research into the vendor and product is half the battle in a negotiation. With a mountain of research at their disposal, negotiators know which questions to ask to get a sense of the quality of the partnership.
Far too many negotiators stick too closely to their demands. Though non-negotiables are expected, rigidity toward cost can steer away from the quality of the product and the potential for a long-lasting business partnership.
Conversations can be broken down into creating, processing, and replying. As long as all parties remain attentive and respectful, negotiations continue. Although it is not possible to control how others communicate, it is important to stay diligent and clear.
It is easy for a buyer to become intimidated by the size of a vendor. Regardless of how large the vendor is, however, the buyer gets what they want — whether it’s money or to have the buyer on their list of clients.
Even if these pitfalls have not historically occurred in your approach, every negotiation is different. It is better to notice the potential pitfalls before they change the course of the meeting.
Vendor Negotiation Techniques and Strategies
As we have mentioned, vendor negotiations can be complex, imperfect, and even unstructured. According to a recent publication from IACCM and Keld Jensen, less than 20% of negotiations are conducted within the structure of a formal strategic plan.
This isn’t due to a lack of preparation, but rather the highly complex and constantly moving components of the negotiation process. Here are three vendor negotiation techniques to utilize in your negotiations going forward.
1. Understand business missions.
According to a recent report from World Commerce & Contracting, scope and goal specification is the most important factor in a negotiation. A way to understand the scope and goals is to understand the fundamentals of both your business and the vendor’s:
- What are the essentials of the businesses?
- Which markets do they serve?
- What are the overall operational goals?
Without a strong understanding of the issues of each business, negotiation is not likely to maximally benefit both parties.
Developing strong intel on the vendor allows you to understand their pressures with regards to pricing trends, market constraints, regulatory issues, or anything else the supplier might not reveal in a negotiation.
2. Adapt to technological trends.
In our highly digitized world, this should go without saying. Although it is commonly believed that negotiations thrive on physical presence, developing a digital strategy cannot be avoided as business operations become more and more reliant on email, video conferencing, and virtual communications.
However, just because this is not how negotiations have been conducted in the past does not mean negotiators cannot adapt, particularly if you follow some techniques provided by the Harvard Business Review such as assigning roles at the outset and prioritizing video as means of communication over email.
3. Maintain relationships.
Although the buyer’s ultimate goal is cost savings, it is also important to remember that a long-lasting relationship with a vendor provides benefits to both parties in terms of savings and quality products.
One-off negotiations tend to approach the situation differently from the relationship-based win-win model, taking instead a more single-sided approach. In a win-win negotiation, both parties compromise so that each side leaves with a satisfactory level of value with a goal of long-term success over time.
Utilize Extensive Expertise in Vendor Negotiation
When you partner with SRM (Strategic Resource Management), our team of consultants will play a crucial role in providing vendor negotiation techniques, selecting vendors, assisting with contract negotiations, and more. Our extensive expertise and in-depth market intelligence contribute to our clients’ strong supplier relationships and ultimately strengthen their cost savings in procurement.
Ready to see cost savings from your negotiations? Request a consultation with SRM today.