Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Supplier Negotiations — 7 Tips for Success
- An effective supplier negotiation can greatly influence organizations’ goals toward longevity and success.
- Getting to know your supplier is a vital stepping stone in a business deal that can lead to success and mutually positive relationships.
- Negotiating to create value beyond price is important for getting quality products, efficient delivery times, and favorable contract terms.
Supplier negotiations play a big part in the outcome of a procurement process. It is at this stage that procurement leaders communicate terms and business needs before closing deals to acquire goods and services.
In this article, I will cover the topic of negotiating with suppliers and how it can impact the procurement process. Additionally, I will also share with you all my personal experience regarding supplier negotiation.
Hopefully, after reading this article, you’ll understand the particulars of supplier negotiations, including seven tips for success.
Supplier Negotiations
In procurement, supplier negotiations call for engaging with potential vendors to discuss terms and agreements for buying products and services. These negotiations also require procurement professionals to hone multiple strategic skills and soft skills.
In negotiating with suppliers, procurement professionals need to set goals, research, manage relationships, develop a strategy, and more. Moreover, the negotiator should also be prepared to handle different emotions, adapt communication styles, and manage time efficiently.
Navigating supplier negotiations involves effective communication and strategic problem-solving skills. These skills in supplier negotiations can bring outcomes that contribute largely to an organization’s bottom line.
7 Tips for Success in Supplier Negotiations
Supplier negotiations are made up of several stages, and the negotiator’s approach can change at any time. With the right approach, you can navigate negotiations successfully with these seven tips.
1. Get to know your supplier
Knowing your supplier is the first step to achieving a successful negotiation. Aside from researching the supplier, the market, and industry trends, there are other factors you should know.
It’s crucial to know the supplier’s perspective if you can. Put yourself in their position to understand how they operate their business, their budget constraints, the ESG values they uphold, and more.
Getting to know your supplier’s perspective will help you take the next steps in a deal and help build mutually beneficial relationships.
2. Explore different negotiation strategies
How you negotiate is a crucial starting point for any procurement professional. It’s important to understand that negotiation styles and tactics will change depending on the person, project, culture, and other factors.
Exploring the different negotiation strategies can equip you to deal with different people and their communication styles. In negotiations, the styles can vary from collaborative, aggressive, compromising, and more.
3. Be prepared to walk away
While patience can bring win-win outcomes in a negotiation, you should also be prepared to walk away.
Suppose a supplier is unwilling to compromise or their offer doesn’t align with your procurement needs. In that case, you can try to be firm while acknowledging that the negotiation might not end in you closing the deal.
4. Find value beyond price
Negotiating price is a major contributor to the success and efficiency of a business deal. However, it’s equally important to consider quality, delivery time, warranties, and payment terms.
Negotiating on different fronts allows you to find value in multiple facets, leading to a more beneficial and efficient outcome.
5. Maintain flexibility
Flexibility in negotiations is likely to bring more advantageous results in a business deal. Being flexible means you’re willing to adapt negotiation strategies based on any internal or external changes, even if they are sudden.
This applies to changes in your business needs and the supplier’s preferences. Moreover, you may need to change your negotiation strategy based on market fluctuations and supply chain disruptions.
6. Use data and analytics
Leverage data and analytics to further boost your research and help you prepare for negotiations and validate agreed-upon terms.
Data and analytics can support your standing in a business deal by offering detailed insights into market reports, supplier performance, and more.
7. Determine your BATNA
Determine the best alternative to a negotiated agreement, or BATNA; to strengthen your position in case you’re out of options.
Think of it as a backup plan to your desired price or terms. Having a BATNA is crucial for any negotiator and supplier to streamline the business deal.
The Impact of Supplier Negotiations
One of the immediate impacts of successful supplier negotiations is cost savings. Aside from quality and delivery schedules, procurement leaders negotiate prices, aiming for mutually favorable terms that make the best out of a business deal.
What comes to mind when you think about a successful supplier negotiation? Is it reaching favorable prices and contract terms, or finding high-quality products and supplier reliability?
While these factors are a crucial part of supplier negotiations, the impact of negotiating with the right suppliers cannot be overstated. Negotiating ideal contractual terms can also impact risk management, supply chain management, and sustainability performance.
A 2023 study by Vantage Partners on effective supplier relationship management found that proficient negotiation stands out as a highly impactful tactic in driving long-term success through business operations.
In addition to this, supplier negotiations are a stepping stone toward building positive partnerships. Partnerships that drive strategic value can lead to more innovation and trust, and can even bring potential for business growth.
My Experience in Supplier Negotiations
For this article, I share my insight in supplier negotiations.
“In the past, I had worked for a company and I had a good relationship with a supplier. This supplier told me over lunch that he had a major problem. I cannot disclose what the problem was, but I agreed to help him find a solution in our upcoming deal.
However, the company’s focus shifted a bit, and the goals and guidelines set for upcoming negotiations forbade me from helping him with that problem.
So then I had to find a way to focus on achieving my company’s targets, follow the company’s new guidelines, and keep my word as a negotiator with my supplier.
With that in mind, I helped my supplier with a different variable in the deal than we had initially discussed, but it still gave him a positive feeling about the negotiation. Sometimes, you have to be creative in negotiations to get favorable outcomes.”
Conclusion
To sum up, supplier negotiations are a crucial step in any procurement process. This stage requires problem-solving, being prepared to walk away, learning to be flexible, and more.
Negotiating with suppliers also involves emotional intelligence, patience, and persistence. Therefore, negotiators are prepared to be authoritative about their procurement needs.
Combining strategies with soft skills is crucial for navigating supplier negotiations. When done effectively, these skills lead to long-term stability, success, and positive supplier relationships.
Frequentlyasked questions
What are some key skills and strategies needed in supplier negotiations?
Supplier negotiations require a blend of strategic decision-making and soft skills. Negotiators need to have established goals while maintaining flexibility and emotional intelligence.
How can negotiators balance focusing on long-term goals and managing positive supplier relationships?
Balancing long-term goals and supplier relationships requires procurement leaders to demonstrate patience and creativity while driving value and understanding their supplier base.
What are the best practices we can adopt for successful supplier negotiations?
The best practices for successful supplier negotiations are as follows: know your supplier, explore negotiation strategies, be prepared to walk away, find value beyond price, maintain flexibility, use data and analytics, and determine your BATNA.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
