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4 Critical Supplier Negotiation Strategies for Successful Procurement

Feb 7, 2020

To thrive in this competitive world, devising successful supplier negotiation strategies has become imperative. The balance of power has gradually shifted from buyers to suppliers due to various reasons and companies have gotten into a weak position. They can no longer rely on hard negotiations while collaborating with suppliers. It has thus become important for companies to assess whether they could help the supplier realize value or change the way they buy. They need to look at acquiring a new supplier or creating one, considering the option feasible for the organization.

Wondering how your organization can develop successful supplier negotiation strategies and create the opportunity for win-win negotiations? Request a free proposal to uncover comprehensive supplier insights.  

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Successful Supplier Negotiation Strategies

Supplier negotiation strategies #1: Turn a commercial transaction into a strategic partnership

Bringing new value to suppliers is one of the most powerful supplier negotiation strategies that companies can adopt to redefine their relationship with suppliers. It can rebalance the power equation between both parties and aid in strategic partnerships. Companies can either offer the supplier a market opportunity for price concessions that is too good to pass up or help a supplier reduce its price risks. In return, they can demand some concessions. 

Supplier negotiation strategies #2: Change your pattern of demand

If the scope to create new value for suppliers is limited, the next best alternative is to change the pattern of demand. Companies must perform intensive data collection and analysis to measure the impact of this strategy on other functions of the organization. They can then choose to consolidate purchase orders and form purchase consortiums with other firms in the industry. If in case, creating large purchasing bundles within product categories or geographies is difficult, consider purchasing across them or altering demand. Shifting volume away from a powerful supplier by switching to a substitute or lower-cost product is an effective strategy.

The inability to alter demand away from powerful suppliers can impact the profit margins of companies in the long run. Stay a step ahead by requesting free platform access to improve the supplier negotiation process and gain specific insights.  

Supplier negotiation strategies #3: Create a completely new supply source

If changing the demand profile is not possible, companies should try creating a new supply source. It might sound like a risky proposition but can transform the prospects. Bringing a supplier from an adjacent market is the easiest way to obtain commodities at lower prices and create longer-term contracts. Companies can even consider investing in the requisite assets and capabilities or joint venture with a company that has some of those assets and capabilities. This will not only shift demand away from powerful suppliers but also inhibit the monopoly in the market. 

Supplier negotiation strategies #4: Swing the pricing in your favor

Companies need to know when to walk away from a negotiation. There is a possibility that the supplier has given the lowest price point, but you want it lower. In such a situation, canceling all the orders, excluding the supplier from future business, or threatening litigation can be the only way to establish authority. These are truly tactics of last resort that can make the supplier back down and swing the pricing in your favor.

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