In today’s business world, there’s a desire to have your good suppliers stay in business. This desire often tempers how aggressive procurement professionals are when negotiating with certain suppliers.
Most suppliers could remain solvent even if they anointed your organization the one customer they no longer charge. But some suppliers’ viability could be threatened by offering their biggest customer an unprofitable price structure.
In procurement, you don’t always know if the deal you negotiate for might be fiscally unhealthy for your supplier. So, they question is: how hard should you push certain suppliers?
The answer to this question is often provided by a supplier itself. The supplier negotiator will respond to a request for an increased discount by saying something like “Sorry, but our last proposed price is the absolute lowest price we can offer. We simply cannot agree to a price lower than that. If we had to choose between offering a lower price and respectfully declining your business, we would be forced to decline the business.”
And they’d repeat it if you persisted with your request. Even if you escalated the request to a high-level decision-maker, you’d still get the same answer.
But then there are your spineless suppliers.
These are the suppliers to whom you are a big customer. Perhaps their biggest customer.
And they’d do anything to retain you.
So, after doing business with them for years at an aggressively negotiated price, you request an even lower price. Often in procurement, you are virtually or actually required to at least ask for a better deal.
Even if it’s unreasonable. Even if it strains the relationship. You are required to ask. It might be internally perceived as demonstrating that a relationship has not biased you towards that supplier at the cost of your organization.
If the supplier says “no,” you’re able to say that you did your job. And, based on previously-documented savings, you know in your heart you are getting a great deal.
But spineless suppliers will say “yes.” They just don’t have the guts to risk ticking off a big customer.
Even if it takes the relationship from a break-even one to an unprofitable one. Even if it threatens their very survival.
They know it’s a painful deal for them. You know that, too.
But do you still push for those types of deals?
I’ve witnessed – and engaged in – arguments for both sides. Most of the points made in those arguments have some validity to them, such as:
- A procurement professional has a fiduciary duty to maximize their organization’s bottom line, not those of the organization’s suppliers
- It is unethical to pressure a supplier into a situation where its survival is threatened
- Suppliers have two types of customers: (1) customers that are valuable but unprofitable, and (2) customers who are profitable enough to subsidize the losses incurred by doing business with the other type of customer. It’s better to be a type 1 customer than a type 2. Let a weaker-negotiating customer subsidize your deal.
- When you are a “good customer” in all ways to a supplier, that supplier will go above-and-beyond the call of duty for you, especially when you’re in a jam.
Every situation is different. So, I can’t tell you how hard you should negotiate with – or how much mercy you should show to – a spineless supplier.
The only advice is can give is for you to beware of spineless suppliers. If a supplier’s leadership starts exhibiting such poor decision-making that even you feel that they are too willing to accept ridiculous deals, it may be a sign that the supplier is poorly led. And poorly-led suppliers can end up bankrupt, leaving you in the proverbial lurch.
Sometimes, it’s better to stock your supply base with suppliers who have backbone. Maybe you’ll have to become a better negotiator to get a good deal from them.
But you’ll worry less about them disappearing due to a lack of courage (and brains).