Negotiating Too Hard: Why Suppliers Bail
Do You Know When Overly Hard Negotiation Is Inappropriate?
PurchTips Edition #343 Click here for the printer-friendly version
You obviously want to get the best deal practical for your organization. Sometimes, the most profitable scenario for your organization in the long term involves having a financially healthy supply base that is enthusiastic about helping your organization succeed.
This means that it’s OK to negotiate hard. But, in certain situations, it’s possible to negotiate too hard. Hard negotiation, however, 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. Here are three reasons negotiating too hard may drive the optimal supplier away.
- Your business won’t be profitable for them. Sure “number of new customers” is an important metric for sales organizations. But it is not the most important one. Often, profit is. That’s the amount of money left after costs are deducted from sales. If you’re pushing for a price that won’t cover your supplier’s costs – including direct and indirect costs – it won’t be worth it for your supplier to accept your business.
- You seem like a “high maintenance customer.” If your organization seems like the type of customer that will constantly argue over prices and billing, make unusual or lots of service requests, and generally require more attention than other clients, a supplier may not care to devote a disproportional amount of resources to serving you.
- Your business will consume limited capacity that could be available to more profitable customers. Not every supplier would be able to fill double or triple the number of orders it receives. Limitations on available facilities, workforce, or other resources may limit capacity for new business. If such a limit applies and your business appears to consume too much of that limited capacity for too little profit, a supplier may prefer to use that capacity in a way that results in more money that drops to its “bottom line.”
Want to get more procurement articles by email for free?
Members of the NLPA get great articles just like this by email every two weeks. As a member, you will also get access to:
- The Procurement Training & Certification Starter Kit
- The latest Purchasing & Supply Management Salaries Report
- Leading-Edge Supply Management™ magazine
- Members-only webinars 10x per year
- And more!
And the best part is that membership in the NLPA is Free! Sign up today and you'll receive a username and password that will allow you to access all of the benefits that come with the NLPA membership.
Copyright 2015. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.
This is the Web-based version of this article. Click here for the printer-friendly version.