When negotiating or renegotiating supplier contracts, the Golden Rule still applies: Treat others as you would like to be treated. In other words, don’t become known as the business that regularly pounds its suppliers on price.
That said, it’s wise to periodically assess your supplier relationships to ensure they’re working well for both you and your suppliers. Here are seven tips.
- Really get to know your suppliers – With major suppliers, it’s not enough to think of them just as commodity providers. Smart business owners thoroughly familiarize themselves with their suppliers, including their processes, performance, personnel and interests. Armed with this information, you may even be able to help your supplier operate more efficiently for your mutual benefit.
- Reassess (and renegotiate, as needed) your contracts annually – It’s typically a good idea to limit your supplier contracts to one year, as longer time periods don’t necessarily provide better cost-savings or value. (Just as a bigger box of breakfast cereal isn’t always a better buy than the smaller box.) Annual contracts will also regularly prompt you and your supplier to reassess your relationship and renegotiate contract terms, if necessary.
- Communicate regularly – Especially with major suppliers, regular communication helps cement long-term relationships and typically leads to better contract terms and pricing. Don’t wait a whole year to let your suppliers know what you’re really thinking; whether your information is positive or negative, always keep your suppliers informed.
- Know your prices (in general) – If a supplier’s pricing is a major factor to your business’ success, it can be exceedingly helpful to know what it costs your supplier to produce the items you purchase. Before renegotiating pricing, do some homework on your supply costs; it will likely pay off later in discussions.
- Get quotes from other suppliers – Even if you’re completely satisfied with the service and pricing of your supplier, it’s still a good idea to periodically get quotes from other suppliers. If a different supplier’s pricing and terms are radically better than what you’re now receiving, tell your current supplier.
- Embrace negotiation – Many people avoid business negotiation out of fear and/or lack of skills. That’s why “one-price” new car dealers have become so popular. But don’t let hesitation prevent you from negotiating; with time and practice, you can improve your negotiation skills. Some standard negotiating tips include separating the topic from the people (don’t let emotions get involved); focusing on each side’s interests (don’t just rigidly stick with a position); and using objective, inarguable information as a foundation (see “Know your prices” and “Get quotes from other suppliers” above).
- Think long-term fairness, not short-term gain – Like you, your supplier has a business to run, and is equally susceptible to reduced demand and market uncertainty. Think of your supplier negotiations as a win-win proposition providing benefit for both sides. If price is a major hurdle, find other areas of potential agreement, like changes in materials, manufacturing processes or transportation, or adjustments in payment terms or the length and scope of warranties[cite::171::cite] [cite::172::cite].