Negotiate the right deal with suppliers - Info entrepreneurs

Negotiating on price Advertisement InfoentrepreneursreçoitlesoutienfinancierdedéveloppementéconomiqueCanada L'équiped'expertseninformationd'affairesdelachambredecommerceduMontréalmétropolitainEN Connexion Français 514496-4636 1888576-4444 Adviceandguidance Adviceandguidance Startingabusiness Startingabusiness PersonalizedGuidance SeminarsonBusinessOpportunities CertificationofExportDocuments MarketStudies ExportFinancing InternationalTradeTraining ConnectionwiththeWorldBank TradeMissions SMEPassport ExportResources ImportResources Financing Financing NetworkingActivities NetworkingTraining CCMMMemberDirectory MarketStudiesandResearchServices Businessplan Registrationandlegalstructures Registrationandlegalstructures GuidanceforDraftingaBusinessPlan HelpinSeekingFunding News,Grants,andCompetitions FundingMeet-and-Greet ResourcesforDraftingaBusinessPlan Regulations/Permits/Licences Regulations/Permits/Licences PersonalizedMarketInformationResearch PersonalizedMeetingswithGuestExperts GovernmentSubsidiesandPrograms Taxes Taxes Trainingforyouremployees EmployeeManagement InterconnectionProgram WageSubsidies Frenchcourses Merchant-StudentPairing Intellectualproperty Marketingandsales Operationsmanagement Hiringandmanaginghumanresources Growthandinnovation Importingandexporting Callsfortenders Supportorganizations Sale/Closure/Bankruptcy Businessintelligence Businessintelligence Businesslistsandprofiles Marketdata Markettrends Businessadvice Businessadvice Businessplanmanagementconsultant Legalstructuresconsultant Accountingconsultant Legalconsultant Exportcertification Resourcecentre Home > Search > Negotiatetherightdealwithsuppliers Guide Negotiatetherightdealwithsuppliers Shareon: Savethisdocument Youmustfirstbeloggedintosavethisdocument. 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Negotiatingtherightdealwithyoursuppliersdoesn'tnecessarilymeangettingwhatyouwantatthecheapestpossibleprice.Youmaywanttonegotiateotherfactorssuchasdeliverytimes,paymenttermsorthequalityofthegoods.Mostbusinessownerswouldviewagooddealasonethatmeetsalltheirrequirements.Buttherearemanyotherfactorstoconsider,suchaswhetheryouwanttodobusinesswithaparticularsupplieragain.Bothsidesshouldconcludeanegotiationfeelingcomfortableandhappywiththeagreement.Negotiationscanbeunsuccessfulifeithersidefeelsforcedintoacorner.Thisguidesetsouthowtonegotiateadeal,includingsettingyourobjectives,understandingyoursupplier'spositionandusingtherighttactics.SettingobjectiveswhennegotiatingwithsuppliersUnderstandyoursupplierDevelopinganegotiatingstrategyNegotiatingteamConductnegotiationsNegotiatingonpriceRunningchecksonyoursupplierDrawingupacontractforyourpurchaseSettingobjectiveswhennegotiatingwithsuppliersThere'sarangeofkeyconsiderationsyouneedtobearinmindwhensettingobjectivesforpurchasenegotiations.Thesemightinclude:pricevalueformoneydeliverypaymenttermsafter-salesserviceandmaintenancearrangementsqualitylifetimecostsofaproductorservicewhetherornottheproductorserviceisessentialtoyourbusinessBeforeyoustarttonegotiate,drawupalistofthefactorsthataremostimportanttoyou.Decidewhatyouare-andaren't-preparedtocompromiseon.Forexample,ifyou'reorderingsuppliesinbulkyoumightwanttofindasupplierthatwillofferyouadiscount.Orifyou'reinvestinginacomplicatedpieceofcomputersoftware,youmightwanttomakesurethattrainingisprovidedaspartofthedeal.Thekeyistoestablishyourpreferredoutcome.Butremainrealistic-ifyou'renotpreparedtocompromise,thenegotiationswon'tgetfar.Youshouldalsoconsiderwhatofferthesupplierislikelytomakeandhowyou'llrespond.Rememberthatifyouwanttodomorebusinesswiththesupplierinthefuture,youshouldaimtostrikeadealthatbothpartiesarehappywith.Althoughgettingthebestpossibledealintheshort-termisimportant,agoodrelationshipinthefuturemayhelpyougetevencheaperpricesorotherperks,suchasprioritydelivery.Don'tunderestimatetheimportanceofgoodwill.UnderstandyoursupplierByconductingsomebasicresearchintoapotentialsupplieryoucanworkouthowvaluableyourbusinessistothem.Yourbargainingpowerincreasesindirectproportiontoyourpotentialsupplier'sneedforyourbusiness.Ifthesupplierrunsanearmonopolyitislikelytohavetheupperhandbecause:ithasenoughbusinessalreadyyouonlyhaveafewothersourcestoselectfromHowever,ifthesupplierhasanumberofcompetitors-orisanewentranttoaparticularmarket-you'llbeinamuchstrongerposition.Also,thesuppliermayalreadybeofferinggooddealsinabidtoincreaseitsmarketshare.Alternatively,asuppliermayneedyourbusinesstogetridofoldstockortofillspareproductioncapacity.Trytofindoutasmuchasyoucanaboutthestateofitsorderbook.Ifyou'reasmallsupplier'smaincustomer,yourleverageinnegotiationsmaybeconsiderable.Buttreadcarefully-ifyoupushtoofaryoumayerodeitsgoodwill,whichcoulddamagetheserviceyouget.There'salsotherisktheycoulddroptheproductyourequire,orevengooutofbusiness.Trytoidentifythekeystaffinthesupplier'sbusinesstonegotiatewith.There'snopointtryingtosqueezeconcessionsoutofajuniormemberofstaffwhodoesn'thavetheauthoritytograntthem.Negotiatingattherighttimecanbeanimportantstrategictool.Forexample,asalespersonmayneedtomeetamonthlysalesquota.DevelopinganegotiatingstrategyIt'sessentialtoplanyourstrategyinwritingbeforebeginningnegotiations.Thiswillhelpyousetcleargoalsandworkoutwhereyouwilldrawthelineandwalkawayfromthedeal.Startbydefiningwhatyourprioritiesare,suchaslowprice,highspecificationgoodsoraspecificdeliveryschedule.Thinkaboutdifferentoffersthesuppliercouldmakeandwhatyouarewillingtoconcedeorcompromiseon.Forexample,youmaydecidethatyou'llonlypaythefullpriceinexchangeforfastturnaround.Writedownyournegotiatingstrengthsandhowyoumightusethemtogettheconcessionsyourequire.Considerwaysofdefendingtheweakerpartsofyourargumentandnegatingthesupplier'smainstrengths.NegotiatingteamOnceyou'vesetoutyourstrategy,itisalsoessentialtogetyournegotiatingteamright.Makesureithasskillsinallthenecessaryareas.You'llneedtoensureyoumatchtheseniorityofthesupplier'srepresentatives.Forexample,youshouldn'tsendajunioraccountmanagertobargainwiththeirmanagingdirector.Makesureeachmemberoftheteamisfamiliarwithyournegotiatingstrategy.Themoreconfidenttheysoundaboutwhattheywant,themorelikelytheyaretogetit.ConductnegotiationsBeforeyoustartnegotiating,statetheaspectsofthedealyou'rehappywithandthepointsyouwanttodiscuss.Askthesuppliertodothesame.Makesurebothsidesaresatisfiedwithwhatisbeingnegotiated.Getthesuppliertorestateanydiscountsofferedandpaymentterms.Keepthesekeybitsofinformationtohand.Ifyouhaveenoughbargainingpower,insistonusingyourowntermsandconditionsofpurchase.Donotindicatethattherearethingsyou'repreparedtoconcedeorcompromiseontooearlyinthenegotiations.Trytogivetheimpressionyou'reapproachingthenegotiationspositivelywithoutrevealingyourposition.Forimportantorlargepurchasessuggestsettingoutthekeypointsofthedealinwriting.Forexample,forthepurchaseofcompanycars,thesemightstateyourrequirements,suchasthemake,year,model,theinteriorspecificationanddeliverytimes.Youalsoneedtobeawareofcommonnegotiatingtactics.Iftheotherpartykeepsreferringtourgentdeadlinesorapersontheyneedtoconferwith,remembertheymaybeusingpressuretactics.Usesuchtacticsyourselfwithcaution.Don'tallowpressuretoforceyouintoagreeingtoapointyou'renothappywith.Askforabreakifyouneedone.Eachtimeyouagreetoapoint,clarifythatyou'veunderstooditcorrectlyandwriteitdown.Insometrades,supplierssetartificiallyhighpricesthatarethenpermanentlydiscounted.Ifthisscenarioappliestoyourbusinessthenensurethatanyconcessionsthesuppliergivesarereal-negotiatediscountsthatgobeyondthestandardlevel.NegotiatingonpriceSomepricenegotiatingtechniqueswillbefamiliarifyou'veeverbarteredatamarket.Neveracceptthefirstoffer-makealowcounter-offerinreturn.Theotherpartyislikelytocomebackwitharevisedfigure.Alwaysaskwhatelsetheycanincludeatthegivenprice.Ifthepriceissuspiciouslylow,askyourselfwhy.Arethegoodsofsufficientlyhighquality?Dotheyreallyoffervalueformoney?Whatwillafter-salesservicebelike?Youcanalsotrytomaketheaskingpricelookhighbyexposinganyongoingcosts.Askaboutrepaircosts,consumablesandotherexpenses.Ifthecurrentstateofthesupplier'smarketmeanspricesarefalling,pointthisout.Ifthepriceincludesfeaturesyoudon'tneed,trytoloweritbyaskingtoremovethosefeaturesfromthedeal.Useyourbargainingpowertogetagooddeal.Forexample,ifyou'reabigcustomerofthesupplier,youcouldaskforbulkdiscounts.Butrememberthatifyousqueezethepricetoolow-perhapsbythreateningtowalkawayfromthenegotiations-youmayendupgettingapoordeal.Thesuppliermayhavetocutcostselsewhere-inanareasuchascustomerservice,whichcouldprovecostlytoyouinthelongrun.Evenifyouareasupplier'smaincustomerandenjoymostofthebargainingpower,forcingittomeetpricesatwhichitcouldgooutofbusinesswon'tprotectyourreputationasahighlyvaluedcustomer.Thesupplierwillsoonlookforothercustomersandislikelytofeelresentful.RunningchecksonyoursupplierBeforesigningacontractwithanysupplierit'sessentialtocarryoutduediligencetocheckitcanfulfiltheagreement.Youshouldcreditcheckpotentialsupplierstoensuretheyhavethecashflowtodeliverwhatyouwant,whenyouneedit.Thisisespeciallyimportantifyou'reenteringintoalong-termcontract.Forexample,ifyoursupplieristheonlyavailablesupplierofCustomerRelationshipManagement(CRM)softwareyouareinstalling,youneedtobesureitisn'tatriskofgoingoutofbusiness.Thesupplierwillprobablyalsorunchecksonyoutoensureyouhavethemeanstopayforitsgoodsorservices.It'salsoagoodideatogetreferencesforthesupplierfromothercustomers.Thesuppliershouldbehappytoputyouintouchwithsomeofitspreviousclients.Ifnot,askyourselfwhatheistryingtohide.However,rememberthathe'sunlikelytoputyouintouchwithadissatisfiedcustomer.Sometimesamanagerinabusinessbidsforcontractsandthenpassestheaccounttosomeoneelse.Ifthisislikelytobethecase,makesureyou'rehappywithwhoeverisbeingassignedtodothework-andthatyou'llbeabletodealwiththemanagerifanyproblemsarise.DrawingupacontractforyourpurchaseOnceallthepointshavebeennegotiatedandadealhasbeenagreedtoit'sbesttogetawrittencontractdrawnupandsignedbybothparties.Althoughverbalcontractsareacceptableandlegallybinding,they'reveryhardtorelyonincourt.Bothpartiesshouldagreeonwhatthecontractwillcover.Typicallyitwillinclude:detailsofprice,paymenttermsanddeliveryscheduleaclausestatingthesupplier'srighttoownershipofthegoodsuntilthey'refullypaidforaclauselimitingtheseller'scontractualliability-takingintoaccountthepurchaser'sstatutoryrightsDependingonwhoholdsthebargainingpowerinthenegotiations,thetermsandconditionsusedmaybeyourown,thesupplier'soramixtureofthetwo.Youshouldconsidergettinglegaladvicewhendrawingupyourstandardtermsandconditions.Aimtogetacontractthatprotectsyourinterestsandthatshiftslegalresponsibilityforanyproblemstothesupplier.Notifythesupplierinwritinghowyouintendtouseitssuppliesandaskforwrittenconfirmationthatwhatitissellingyouissuitable.It'sagoodideatoexplicitlyaskaboutanyhiddenproblemsandtokeepawrittenrecordofallassurancesgiven.Makesurethatyourcontractcoversthelevelofafter-salesserviceyourequire.Buildintothecontractwhatwillhappenifthereareanyproblemswiththegoodsorservices.Forexample,willthesupplierreplaceindividualfaultygoodsorthewholebatchandwithinwhattimeperiod?Agreeonpenaltiesforfailuretomeetdeliverytimesorqualitystandards,suchasafuturediscount.Youshouldalsoconsiderincludinganydisputeresolutionorexitproceduresthatmustbefollowedifeitherpartyisdissatisfiedwiththerelationshiporwantstoendthecontract.Originaldocument,Negotiatetherightdealwithsuppliers,©Crowncopyright2009Source:BusinessLinkUK(nowGOV.UK/Business)AdaptedforQuébecbyInfoentrepreneurs 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