Negotiating On Behalf Of Your Suppliers
PurchTips - Edition # 194
By Charles Dominick, SPSM
Are Hidden Cost Savings Available For The Taking?
Do you have a strategic partner or sole source supplier relationship? Are you the largest consumer of your supplier's goods/services? If so, then you should look at negotiating on behalf of your suppliers.
If your suppliers have gotten their costs as low as they can on their own, negotiating with them pressures them to reduce their profit margins - a contentious situation. However, by negotiating with your suppliers' suppliers, you can reduce your suppliers' costs and your costs while keeping the suppliers' profit margins intact. Negotiating on behalf of your suppliers helps enhance those relationships that you deem as strategic and is a great way to gain additional insight and information into the industry and into your supply chain.
Here are some points to remember.
#1 Negotiate The Supplier's Entire Volume. You want a competitive advantage and may worry about the supplier passing savings on to other customers. However, the larger the volume, the greater your savings. Also add your volume for similar items to the deal to get the leverage necessary for maximum savings.
#2 Always Manage The Negotiations. You may have the knowledge and technology to manage the negotiations better than the supplier. This also gives you the control on timeline, information, etc. Lastly, it provides additional insight into just how big a customer you are to the supplier.
#3 Require That ALL Savings Must Be Passed Along To Your Organization. Now that you are managing the negotiations and helping your supplier achieve savings and efficiencies, you should require that all savings generated on your volume (and possibly a portion of the volume from other customers) be passed directly along to you.
Successful negotiations should be those that are a win-win situation. By negotiating on behalf of your suppliers, you can provide a win-win-win solution. You win, your supplier wins, and their supplier wins by gaining additional volume.
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