CIPS

Knowledge
BYTES

Negotiating with Suppliers

Selecting the right suppliers will make a major difference to the cost and quality of your organisations products and
services. The negotiation process is one of the integral phases to ensure the right supplier is chosen.

When negotiating with suppliers it is important that you

dont just concentrate on a single issue, price. You will
need to consider issues such as quality of service and
product, reliability of performance, flexibility in
meeting your requirements. Negotiating the right deal
with your supplier does not necessarily mean getting
what you want at the cheapest possible price
Many P&SM (Purchasing & Supply Management)
professionals would consider a good deal as one that meets all
their requirements. But there are many factors to consider
such as do you like what the potential supplier is offering, do
you want to do business with this potential supplier, if so you
will need to devise a suitable approach to the negotiation that
will help foster a good working relationship.
Finally, when undertaking negotiations with suppliers, it is
worth remembering that the best deals are often the ones that
leave both sides happy with the agreement achieved.
However, there will always be a place within the organisations
purchasing portfolio where this type of approach may well
not be suitable.

Establish Your Priorities.

Remember that
price is not the
only consideration

A more expensive supplier who meets your other priorities such as product and service quality
and responsiveness could represent better value for money
For some products and services, total lifecycle cost is more important than the initial purchase
price
Flexible payment terms, such as extended credit, are important if you face cash-flow constraints.
A supplier who can offer a long-term fixed price may well help your planning.

Clarify what your

delivery
requirements are

You may want flexibility: for example, low minimum orders and immediate delivery
Depending if your buying internationally, you will need to consider the type of transport you need
Some suppliers may offer stockholding services and Just In Time delivery, this may significantly
reduce your inventory costs and reduce risk of obsolescence.

Think how
important
reliability is

Assess the impact on your business of late delivery or poor product and service quality
Review the production capacity of your supplier to ensure they are flexible to meet your
requirements and can cope with any potential increase in demand or change of requirements in
the future
Does the supplier respond to your requests on time, resolve issues on time, attends meetings
promptly etc

Look for a supplier

who can manage
the administrative
burden

If you have several suppliers providing one product it may be worth considering selecting a
supplier with the capacity and capability of meeting all requirements
You may want to consider the type and style of customer interface you require, are they customer
focused, respond to queries on time?
Explore there processes for document management, does it improve effectiveness and efficiency?

Consider how
important the long
term relationship
will be

Consider how your

choice of supplier
can affect your
organisations
reputation

When you purchase a product or service, an element of your organisations reputation is at risk.

Tel +44(0)1780 756777 Fax +44(0)1780 751610 Email ckw@cips.org Web www.cips.org

Make sure you adopt the right negotiating approach, distributive or integrative
How you can extract market intelligence and information regarding technical developments?
Consider incentive schemes
Does the suppliers ethos supplement your own organisations values?

JAN 06

Negotiating with Suppliers

CIPS
Knowledge
BYTES

Negotiating the deal

We have examined a number of key issues that will aid in

ensuring that you obtain the best result for your company
when engaged in negotiations.This article has demonstrated
that although actually negotiating and doing the deal is
exciting, it is vital that the key activities such as, planning and
preparation are an integral element of the overall process in
ensuring that you do not have to rely on your Best Alternative
To a Negotiated Agreement (BATNA)

Review your
negotiating position

Understand how your organisation and the product you require fit with the suppliers portfolio
(Bensaux, Kraljic matrix)
Make sure everyone involved in the negotiation on your side knows what the objectives and
priorities are
Strengthen your negotiating position by introducing or trying to find alternatives, for example,
more suppliers.

Try to find out what

the suppliers
position is

Aim to identify their priorities, for example, disposing of old stock, above average return from the
business, spare production capacity, or generating cashflow
Ask yourself how important your business is to them (Bensaux analysis)
Try to identify concessions you can offer that will cost you little but which the supplier will value.
For example, if you have strong cashflow, you may be in a position to offer prompt payment. Do
you offer a strong consumer brand?

Set out the key

points to be
negotiated

During the negotiation, confirm each key point that you agree.
Try to negotiate the agreement on price before you are too committed to the deal, even if you have
to renegotiate later as other details change
For major negotiations, keep a written record of key points as you agree them. Consider signing
heads of terms before negotiating final deals.

Take a firm but fair

approach to
negotiation

Define the type of approach (Distributive, Integrative) that will be best to help you achieve your
objective
Avoid undermining your own position by making concessions from the start.Ask the supplier to
make a concession for every concession you make
Keep calm. Be aware of tactics they may be using such as creating artificial deadlines or valuing a
concession higher than it true value
Pay close attention to body language, use influencing, empathy and sincerity to aid in influencing.

Aim for the right

solution for all
parties concerned

This will depend on your objectives and the type of purchase, is it a one off buy, a one issue
purchase or will you be seeking something more sustainable from your supplier?
Approach the negotiation with a positive mind, use positive language, communication and body
language.
Recognise when you are squeezing the supplier too hard.Your business may become less valuable
to them, and they may look for opportunities to cut corners.

JAN 06

Tel +44(0)1780 756777 Fax +44(0)1780 751610 Email ckw@cips.org Web www.cips.org