How to Negotiate with Suppliers
Table of Contents
- Why Buyers should know their Product.
- How to prepare a Supplier Scorecard.
- The benefits of getting prices at different delivery terms.
- Why you should get prices at different volume levels.
- Reasons why you should request a Trail Order.
- The advantages of having more than one Supplier.
- Over to you…
How to negotiate with suppliers – Many inexperienced buyers fall for the trap of buying at the lowest price and then pay dearly for this approach in terms of failed products, disposal costs and lost sales. It would be best to always aim to build a win-win relationship with any supplier. So below are some tips on how to negotiate with suppliers to achieve this.
Why Buyers should Know their Product
One of the many challenges facing buyers in trying to learn how to negotiate with suppliers is that they do not fully know their product. Buyers should always have a Product Specification Sheet drawn up before engaging with new potential suppliers. A Product Specification Sheet should contain the following information:
- Product Specifications and Dimensions
- Materials used to make the product
- Required Product Standards and Certifications
- Packing and Packaging
- Labels and Product Artwork
Once you have all the above information ready, only then, you commence going out to suppliers to search for products.
How to Prepare a Supplier Scorecard
Many buyers can receive price quotes from potential suppliers. But what is the correct procedure to review and assess a set of potential suppliers?
Suppliers should not only be judged on price but also quality. But not just the on quality of the products they produce but also the quality of their delivery and customer support services.
Therefore, I recommend that every buying department prepare a Supplier Scorecard for all their key products. A Supplier Scorecard can consist of any measure that a company feels is important to them. However, the key thing is to use a consistent set of measures to review any potential supplier.
So, at a minimum, a Supplier Score Card should include the following items:
- Price
- Quality
- Materials
- Packaging
- Lead times
- QC process
The benefits of getting Prices at different delivery terms
In today’s world of global sourcing, there are four different primary levels of prices that may be used when negotiating with suppliers.
i. Ex Works – You will collect the products from the Suppliers warehouse.
ii. Free on Board (FOB) – The Seller will deliver the goods to a ship or plane for departure and pay any export taxes or duties.
iii. Carriage Insurance Freight (CIF) – Here, the seller will deliver the goods to a port of your choosing. However, they will not pay for any import duties or transport to your final destination.
iv. Delivered Duty Paid (DDP) – Delivered to your door with the Supplier paying transport plus duties/ taxes.
When negotiating with potential suppliers, getting the ex-works price and then building up from there is advisable. The reason is you have the option of using an alternative third-party transport provider to move your goods from the Sellers location.
Why you should get Prices at different volume levels
When conducting supplier price negotiations for my clients, a successful tactic that I use is to establish price discounts for volume levels with the suppliers.
This tactic enables me to determine any potential price wriggle room from the Supplier. For example, if I was to receive the following prices:
1. 0-50 – €100 per item
2. 50-99 – €90 per item
3. 100+ – €80 per item
From the above prices, I can quickly determine that there is a lot of room to decrease the purchase price and that I should spend plenty of time working on lowering the price with the supplier. Then use this knowledge to negotiate prices with suppliers of the same product.
Reasons why you should request a Trial Order
Many companies may have Minimum Order Quantities (MOQ). The order quantities will often depend on whether the product is a unique product or an off-the-shelf product for the seller. Most times, when a trial order is requested, a seller will often allow lower MOQ levels.
Using a trial order to determine the MOQs enables me to consider any financial outlay required to place an order and identify the flexibility the seller has in terms of price and volumes, and understand how I can negotiate the levels which best meet my target requirements.
The advantages of having more than one Supplier
When it comes to purchasing, I use the mantra of “Loyalty not only binds, but it blinds”. While it is correct to work and treat suppliers as partners, one should always aim to have at least two suppliers for every product. I recommend three.
Using this approach enables an organisation to create a standardised purchasing process in terms of product information, supplier engagement, and price negotiations.
Also, it assists the company to
- Avoid overpaying for products
- Secure a supply of products
- Update Staff in product and industry news
So, How to Negotiate with Suppliers, Over to You…
So if you are looking for a professional firm to source goods from India, Turkey, Portugal, Spain or China, please visit: https://www.tcichina.co.uk/sourcing-agency/
If you are looking for independent purchasing or global sourcing consulting services, or need advice on how to negotiate with suppliers, please do not hesitate to contact me on my LinkedIn profile or at the details below:
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Or at the following numbers:
(Europe/ Rest of the World) +353 1 885 3919
(UK) +44.020.3287.2990
(North America) +1.518.290.6604
Or email me, Aidan Conaty
Aidan Conaty