When it comes to procurement price negotiations, there are a few key skills for procuring services and goods at a reasonable price that benefits both the buyer and the supplier. Being one of the first few processes in the procurement cycle, procurement price negotiations are almost a given in any business venture.
Acing procurement price negotiations need not be a stressful affair, but it helps to have a solid strategy beforehand. Below are seven tips to ace procurement price negotiations with your supplier and get a good deal to start off the procurement cycle on a high note.
According to a study by the Journal of Applied Sciences, the first five minutes of a negotiation is a good indicator of the outcome. Applying this knowledge to procurement price negotiations, common courtesy dictates that it’s only natural to open the conversation by exchanging pleasantries and being well-mannered and considerate towards your potential suppliers. This helps to put them at ease and keep the lines of communication open, making them more receptive to any request that you may have. Start building a strong relationship with suppliers by being easily reachable by phone or email, attentive to their concerns, and prompt in replying to any questions that they may have for you. Learning their jargon also helps to elevate your standing with the suppliers and get you the respect that is expected in every healthy business relationship.
Think like a supplier
A good starting point would be to speak with as many suppliers as you can to ascertain their concerns and understand their business practices. Recognising their needs gives you more information to design a business deal that is attractive to them, which is likely to smoothen procurement price negotiations and put you in a favourable position. Sounding knowledgeable when discussing business deals will also add to your credibility as a worthy business partner. Suppliers are always keen to make a sale, so if you show that you’ve done your homework and offer a reasonable deal that is fair and favourable to both parties, you would be a prime candidate for a business partner. It’s also helpful to provide proof that you are trustworthy, a source of stable income and are capable of paying your bills on time. Having a poor paymaster as a business partner is every supplier’s worst nightmare!
Make your proposition mutually beneficial
Negotiation is an art in itself and a key skill for procuring services from suppliers that is best carried out through a face-to-face meeting. A meeting gives you the opportunity to obtain instantaneous answers to the questions that you have, and work out ways of working together that best fits the business requirements of both parties. Of course, it’s good to start negotiations early in the procurement cycle so that you don’t rush through the process or come across as needing the deal urgently. You don’t want to give suppliers the upper hand and cause the deal to be skewed unfavourably towards them. A great outcome for procurement price negotiations hinges on both parties agreeing to terms and conditions that are mutually beneficial, as business relationships are essentially symbiotic. This process takes time, so it’s best to begin early.
Have a backup plan
A key procurement price negotiation tactic employed by many established organisations is to request for quotations by multiple suppliers. It’s helpful to have at least three quotations from different suppliers to help you gauge market pricing and develop fairer terms and conditions for both parties. A key skill for procuring goods and services is the ability to encourage healthy competition among suppliers. To do this, you could speak to several suppliers at the same time and inform each of them that you are getting other quotes to help you determine the supplier that offers the most competitive pricing. Highlight the fact that your focus is on obtaining the best prices when procuring services, and that you are most likely go with the supplier that can meet that requirement. Having several options also puts less pressure on you to close the deal, giving you the upper hand at the negotiating table.
Think outside the price box
In procurement price negotiations, the price of goods or services isn’t the only factor that determines the best deal. There are other things that can collectively make – or break – a deal. If you are unable to get the supplier to agree to your proposed price, try negotiating for other goodies that will sweeten the deal for you. Several things that you could consider negotiating for include a reduced down payment amount, price markdowns for bulk purchases, shorter delivery time frames without additional costs, or more favourable warranty terms and conditions such as a longer warranty period with better coverage. You can also ask for additional discounts in the event that payments are made before the monthly agreed date. All these extras will contribute to higher profit margins and a better cash flow for your business in the long term.
No one goes into business hoping for it to go belly up within a short period of time; instead, most businesses are built with a long-term vision of growth and profitability. To stay relevant as the years go by, it’s important to structure your procurement price negotiations for the long term. Suppliers would usually be more than happy to enter into a contract that ensures a long period of steady business, so if you can come to a mutually beneficial long-term business partnership, the supplier may be more willing to accede to requests for price reductions and offer other perks. Of course, it would be wise to take market volatility into consideration when entering into a long-term deal, and put in place measures to safeguard your business from losses. Technological advances and drops in product prices may affect your business negatively, so you could be doing yourself a disservice by being tied to a non-profitable long-term contract.
Be willing to walk away
This does not mean playing hardball or even using strong arm tactics. It just means showing the other party that you’ve carried out your due diligence and are clear on what constitutes a fair deal, and that you would not be averse to refusing a deal that does not meet the requirements of your business or the pricing that you deem fair. A key skill for procuring services for your business is being able to be the party that ‘wants it the least’ – which is not a licence to be unreasonable. Rather, you are basically showing the other party that you are not desperate for this deal and are willing and able to walk away from an unfavourable contract terms. Of course, if you choose to go down this route, make sure that you have other options and a host of alternative suppliers for back up, as there’s always the chance that your supplier won’t agree to your proposal. It’s helpful to consider the possibility of this outcome in advance, and be prepared to respond adequately to this situation when push comes to shove.
Be sure to get the best price possible for yourself. We hope that this article is able to guide you in making better choices!
ThunderQuote is the most comprehensive business services portal in Singapore, Australia and ASEAN , where hundreds of thousands of dollars of procurement contracts are sourced every month by major companies like Singapore Press Holdings, National Trade Union Congress and more.