How to achieve win win with suppliers

Often in contract negotiation, the buyer will tell the supplier that let us split the pie into two; let us share the difference between our offer and your quote.

Is this a win-win or lose-lose situation?

Neither the buyer nor the supplier got what they really wanted, it is lose-lose situation. A win-win is meeting your high value objectives while ensuring the supplier feels good about the deal.

Below are strategies for a win-win

Take costs out of Supply chain

It is OK to ask for lower price but it don’t stop there, it important to look inside your company and your suppliers company and find areas of larger savings.

When you pursue a supplier for price reduction, two things happen;

You are focusing on one small linkage in supply chain. Number two, you have not taken costs out of supply chain, instead you are pushing them down the chain. When you tell a supplier give me a better price, what they hear is –make less money so that the buyer can report more cost savings.

The best strategy is to take costs out of the supply chain for incremental savings. An example is Company X which had an outsourced call center. Their supplier receives calls on behalf of Company X and that was costing a lot of money. On doing an analysis, we established 80% of the calls were on the same questions. There was no need to have human beings sitting there to answer 80% questions all day. This was dramatically reduced by making a frequently asked questions web page and sending notification to all customers. The cost center size was reduced by 80%.

The second strategy is harness suppliers best practices.

The monkey in the back of most procurement staff is assuming they are smarter than their suppliers. It is a very wrong assumption that is usually costly. Suppliers understand their industry better than purchasing staff and therefore the need to engage them. When you get a supplier to do something that is not smart, they’ll do it and charge you because the customer is always right.

The big lesson. Suppliers deal with many customers purchasing the same things and are major source of information to help you make smart decisions. Teach your supplier that sometimes, a buyer is wrong, if I am making you do something that increases total cost tell me.

Set expectations

“You don’t deliver product or service, your job is to make us successful” This largely should be the buyer’s expectation.

“What does this contract mean to you?” Find suppliers expectation by listening, and asking questions in a pre-negotiation meeting. This meeting enables the buyer identify what a win for supplier means and concessions that are high value and low cost. Listening makes the supplier want to make you successful and you are able to identify high value low TCO (total cost of ownership) concessions you can make to the supplier. For instance a supplier may request for a testimonial, quoting the buyer in their publications, payment in ten days. These are high value according to supplier but could be of little impact to buyers total cost.