January 15, 2018 Regaining Control of Supplier Negotiations

Suppliers are often in charge when it comes to negotiations, but these tips can help manufacturers create more profitable deals.

by Dean Kaplan

In most industries, the customer may not always be right, but he or she is almost always in charge of the relationship – businesses need customers more than the customers need them. But in manufacturing, it’s frequently the suppliers who have the upper hand. Suppliers have found themselves in a position of control for a variety of reasons. In some fields, demand is growing so fast it has outpaced supply, leaving suppliers free to charge premium prices. In other cases, suppliers have reduced or eliminated competitors by developing disruptive technologies to drive down costs. Although it’s not always the case, occasionally a manufacturer may even find themselves in a situation where there are only one or two suppliers. Whatever the reason for the imbalance in your specific industry, if you’re negotiating with suppliers, you need to find a way to regain the upper hand. Here are five suggestions for regaining, or maintaining, a strong position for your business.

Know What You Bring to the Table

The first step to regain control is to know your own strengths. Yes, the supplier has other customers and you may only have one convenient supplier, but there may be other things in your favor. For example, you may be able to offer a long-term contract or be in a position to pre-pay. Both of these situations should garner you lower rates, discounts or quick delivery. You may also consider rearranging your production schedule so you can order during the suppliers’ slower time, becoming more valuable to them.

Research

The above suggestions depend on you knowing not only your own business, but the suppliers’ business as well. Before you meet with a supplier make sure you understand what their process is, what kind of profit margins they expect, as well as their pain points. The more information you have, the more confident you’ll appear in negotiations, which will help you broker a better deal. Reviewing available supplier directories and reaching out to your referral network for personal insights into how the supplier operates will help you beyond what a simple Google search can do.

Collaborate

We tend to think of negotiations as straightforward win/lose propositions; one person wins, the other loses. But it doesn’t always have to be that way. It may be that there is no way you can get the supplier to come down on their price. But perhaps there are other ways you and the supplier can work together that would help you save money or time in other areas. Over the long run, creating more ties and better relationships between you and your supplier will ultimately put you in a better position in price negotiations.

Do it Yourself

You can have the best negotiation skills in the world, but at the end of the day if your supplier is the only one who can fill your need, you’re starting from a very weak position. If you are a small manufacturer without a lot of negotiating power due to lower volumes or the supplier has a monopoly, you may find it very difficult to negotiate. But, what if you united with other small manufacturers to strengthen your bargaining power? What if you could bring some of the needs the supplier fills in-house? Could you lend financial support to someone on the verge of competing with the supplier? Asking yourself these questions doesn’t provide a quick fix to your supplier problem, but thinking along these lines may open up new ideas for you and your business.

Stay Calm

A lot of damage in negotiations is done by emotional responses. You may be surprised at the number of times someone threatens the person on the other side of the table with legal action, a reputation-ruining campaign or even physical harm. While it is hard to be on the weaker side of a negotiation, nothing ends a discussion more quickly than an expression of anger, greed, ego, fear or other emotional outbursts that can escalate into serious conflict. Keep your emotions in check by coming to the meeting prepared with realistic information and expectations. If necessary, practice the negotiation with a colleague beforehand.

Manufacturers are in a tough position when it comes to suppliers, and there’s no indication that this position will change anytime soon. However, doing your research and thinking in new ways will allow you to come to these meetings with a stronger position and provide the opportunity for a better negotiation.

Dean Kaplan is President of The Kaplan Group, http://www.kaplancollectionagency.com/, a commercial collection agency specializing in large claims and international transactions. He has 35 years of manufacturing and international business leadership experience including a role as president/owner of a custom fiberglass manufacturer. Today, he provides business planning and consultation to a variety of manufacturing companies.

Subscribe to Industry Today