Procurement professionals are forever being advised on how to negotiate effectively and fairly with their suppliers and in particular SMEs. Tips range from the importance of paying suppliers on time, offering flexible contract terms and on-boarding processes, building meaningful and long-lasting relationships and communicating fairly and respectfully.
But what happens when the shoe is on the other foot and the power shifts from the buyer to the supplier? There’s a number of reasons this might be the case. Perhaps a single supplier has a monopoly on a particular product or service because of its niche nature or due to eliminating most of its competition. Or maybe it’s simply a much bigger, multinational company that can afford to drive a hard bargain at the risk of losing your business. Whatever the reason, this circumstance calls for a very different approach to your supplier negotiations.
Here are three ways to approach negotiations with a supplier when you haven’t got the upper hand.
1. Show your worth
When you’re not in a position to negotiate on cost, you’ll need to get creative and find alternative ways to level the playing field and deliver value to your supplier. Typically, larger businesses manage negotiations in a transactional manner, but an opportunity to access a new market(s), in return for discounts, could be very appealing. Therefore, it’s worth investing some thought into what untapped market might appeal.
During supplier negotiations, it always pays to conduct thorough research and assess the situation from the perspective of everyone involved. Consider the supplier’s biggest risk factors and how you might be able to reduce them. For example, you could lock in a multiyear contract. The more you seek to help the other party, the more you’ll get in return.
2. Set high expectations
Working regularly with SMEs means you’ll have become accustomed to receiving personalised services, a supplier who understands your business needs and your market. It would be all too easy to let this type of relationship slide when dealing with a larger business, particularly if they have a tendency to be forceful with their terms and expectations during negotiations. It’s important not to over-compromise due to these pressures from a powerful supplier. Instead, take the time to explain your position and requirements, stand your ground and, ultimately, be prepared to walk away if the deal isn’t right.
If there truly are no other supplier options available, it’s worth considering the possibility of investing in new capabilities and resources to effectively make yourself the supplier.
3. Re-evaluate your purchasing practices
The final way to take back control during your supplier negotiations is to switch up your buying patterns, whether it’s consolidating purchase orders, changing purchase bundles or decreasing the volume of your orders. Is there a possibility to group your organisation’s spend into a single contract at a reduced cost? Are you currently buying certain components from another supplier that you could be buying from this one to increase your purchasing bundle? Or, is there an easily obtainable product or service currently obtained from the supplier you’re negotiating with (alongside their more niche offerings) that you could get elsewhere and thus use as leverage? Interrogate your existing contracts to see how you might be able to create competition.
As with any negotiation, you’ll need to be prepared to negotiate well. Do your research, take your time, know your limits and be ready to get creative.