Never discount the importance of relationships.

Building great relationships, both internal and external, will help you facilitate successful negotiations.  Take the time to understand the needs of your organization, whether it is those of your operations group, new product development team, accounting team, or logistics organization.  All have different needs that you will have to consider when evaluating suppliers.  Don’t wait until problems occur, have an ongoing dialog with all internal groups so that you are providing the best products and services to them.  These internal relationships will give you more leverage as you build your external supplier relationships.  You will be viewed as a more credible and creative negotiator.

Saving money should not always be the top priority.

Pricing, quality requirements, delivery requirements, backup planning, volume management, packaging, financial stability and R&D capabilities are among the many aspects that make a viable supplier.  If your focus is only on saving money, you may be missing out on making your company more profitable.  Understand how each product is used and where costs and profits lie within the operational chain of your organization.  You may find that paying a higher purchase price for an item that is customized to meet the needs of your operational chain can generate a lower cost product and higher profits for your company.

Understand current product and service rates.

Having the ability to go to a supplier and say this is what we need and what we will pay for it will give you an advantage only if you have a good understanding of the competitive rates in the market.  You should understand regional and industry wide rates for all aspects of your procurement needs.

Know your suppliers, not just their sales agents.

Make it a point to have regular visits to your suppliers, understand their capabilities, and know the people within their organization that can make decisions.  It is also a good idea to bring your quality personnel with you to conduct regular audits of their operations.  The more integrated you become with your suppliers the more demanding you can be with them.

Building consensus can be challenging but rewarding.

Many times members within your own organization may be committed to using a supplier for the wrong reasons, often due to a long prior relationship.  Just because they are content, does not mean it is in the best interest of the company to stay with them.  Changing suppliers is difficult but if you approach it by consensus building you will find that change is not only obtainable, but also welcomed.  Work as a team internally to itemize services required, at the same time bring to the table services that are offered in the industry.  Put a dream list together at a target price point and let companies come in to pitch their offers to your company’s team.  By including everyone in the process you will not only get internal buy-in, but you will get suppliers to put more into their offers knowing that the decision is collaborative.

Understand contract design standards within your industry.

Although creativity within your own contracts can bring you a competitive advantage, you don’t want to be the only customer scrambling for product when a shortage occurs because your competitors have contracted aspects of supply agreements that yours does not have.  Talk to various suppliers in your industry and find out what the norms are for contract design.  Make sure your creativity in negotiating is above and beyond these standards.

Written by Lisa Woods,

President ManagingAmericans.com