How Expensive Suppliers Negotiate, Part II

PurchTips edition #184


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How Do You Probe A Supplier's Value Proposition

In the last edition of PurchTips, I explained the supplier negotiation tactic I call "de-commoditizing" to justify a higher price and how you should handle it in negotiations using five questions. The first two questions were (1) Is the supplier meaningfully differentiated? and (2) Do the supplier's differences have a measurable financial benefit to your organization?

The next three questions are:

  1. Can The Supplier's Financial Benefits Be Proven? Any supplier can claim to save you money, but how well do those claims hold up in the real world? Were other customers able to achieve real monetary benefit and track the impact on their companies' financial statements as a result of taking advantage of the supplier's unique capabilities?
  2. Can The Supplier's Financial Benefits Be Guaranteed? Even if other customers have realized positive financial results from the supplier's differences, will you? There is always a risk that you won't. So who should bear that risk? A supplier guarantee will give you assurance that your organization's bottom line will be impacted the way that you expect it to be.
  3. Did You Ask For More Attractive Pricing And Terms Anyway? Just because a supplier can differentiate itself successfully doesn't mean that there is no room for them to make their pricing and terms more attractive. You can still ask for improvements! As the old saying goes, "If you don't ask, you don't get!"

Using these questions to analyze suppliers' claims of differentiation will help you determine whether the suppliers' differences have value to your organization and should be considered or if the differentiation claims are just sales tactics that should be discarded. Do be aware that taking a supplier's unique advantages into account can sometimes result in an unexpectedly more profitable procurement for your organization, despite a higher price. So keep an open mind, but use these questions to focus on what is most important in making a world-class supplier selection.

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