Negotiating Your Spot Buys

PurchTips edition #307

 

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By Charles Dominick, SPSM, SPSM2, SPSM3

Picture of Charles Dominick, SPSM, SPSM2, SPSM3

Do Suppliers Refuse To Budge On Your Spot Buys?

Spot buys are one-time purchases of items. It's a noble pursuit to negotiate pricing for a spot buy. But repetitively-used suppliers will detect your negotiating patterns. If you place orders even when they don't concede a discount, you'll have a hard time achieving consistent cost savings on these spot buys.

But it's not hopeless! Here are some tips for achieving cost savings when suppliers have figured out your spot buy negotiation game.

  1. Turn multiple spot buys into "one big buy." Don't think of each purchase order as the subject of a separate negotiation. Think of the total supplier relationship as the subject of one negotiation. Negotiate annual or multi-year contracts covering all purchases from frequently used suppliers, even if you buy different items with each order. Negotiate a standard discount-from-list or markup-from-cost to be applied to all items bought through the contract term, creating the feel of one big deal. The higher the monetary value of a decision, the more flexible suppliers usually are.
  2. Utilize competition as much as you can. If your suppliers know that they'll get your orders without them conceding a discount, then you are failing to leverage competition. Even if you are doing spot buys while putting together your "one big buy" plan, you can still get quotes from multiple suppliers. Be sure to use documents that make it clear that suppliers will be competing for the order. Sometimes buyers can fall into the trap of only requesting pricing from suppliers they know. There are a world of suppliers out there... don't be bashful about finding new sources that can help you decrease cost and improve performance!
  3. Negotiate annual volume rebates. In lieu of or in addition to tip #1, tell your suppliers that you want to become closer partners with a smaller set of suppliers. You are seeking an annual volume rebate as an incentive to keep them in your consolidated supply base. You can set a few thresholds of spend targets and the supplier will pay your organization a rebate depending on the volume that you hit. The first threshold should be slightly above what you are spending with them annually. For example, if you currently spend $95,000 and you hit $100,000 in annual spend under the new agreement, the supplier will rebate your organization 1%. If you hit $200,000, the supplier will rebate your organization 1.5%. If you with $300,000, the supplier will rebate your organization 2%. This creates a win-win atmosphere around the negotiation – the supplier sells more and you save more.

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