I hope that you have enjoyed the article “Negotiating Too Hard: Why Suppliers Bail.”
In the article, I wrote that “in certain situations, it’s possible to negotiate too hard. Negotiating too hard may drive the optimal supplier away, inhibiting your organization’s long-term success, even if you did get a slightly better price from another supplier.”
The first three words of that excerpt are important: “in certain situations.”
What are those situations?
Those situations are where there may or may not be a choice of potential suppliers, but there is one clearly optimal supplier. That optimal supplier may not ingest every potential customer that comes its way. It may have limited capacity left after serving all of its customers. It may choose to only do business with customers that fit best with the way it works. Or it may have been burned by “bad customers” in the past and is cautious about the new customers it accepts.
Regardless of the circumstances, the optimal supplier doesn’t simply accept and fill every order that comes its way. It’s those situations where you have to be careful not to negotiate too hard.
Your goal should be to find the “sweet spot” – that price point where you feel assured that you are getting the best deal for your organization while also not damaging the relationship with the supplier with whom you are negotiating. That sweet spot is found when you propose terms to a supplier where they say “I’m sorry, we just can’t do the deal on those terms” BUT they are still willing to talk. Then, you can step back and ask “Well, if those terms can’t be agreed to, how close are you willing to get?”
If this conversation can continue, you’ve done a good job! It’s when the supplier is no longer willing to talk that you know you’ve pushed too hard.
This scenario is in contrast to other sourcing situations where there are multiple, equally-qualified suppliers. If you tick your first choice of supplier off in those situations, there is another great supplier waiting in the wings, so you have margin for error.