You are missing out on getting jaw-dropping deals from your vendors and great margins if you don't master negotiation skills for discussions with your suppliers.
While there are no hard and fast rules to fit every negotiation need, there are important principles to help us become more effective during meetings.
When it comes to business, your profit margin banks on the rates you get off your suppliers. The dynamics between you and your providers depends on communication dealings, more specifically, how you present yourself and discuss during the first negotiation phase. Your negotiation skills also contributes to your supplier relationship management (click on the link to read more on how to manage the relationship successfully).
Negotiations are a tricky part of the supply chain and injects a lot of fear into business managers. Start well, and you guys step off on the right foot to a long-term mutually beneficial relationship. Get things off on a bad note, and who knows where else you can get your products.
Know The Lingo
Learn the jargons of the industry while discussing with different suppliers so you appear experienced and seem like you know what you’re talking about. Your suppliers will treat you with newfound respect.
Research On Actual Cost
You are in no better position to negotiate than when you have knowledge on the actual manufacturing cost of products for your supplier. This basic research gives you an idea on how much room you have in lowering prices of your stock.
Share Visions Of Mutual Gains
Build trust by getting to know your suppliers’ goals and pitching their dream. For instance, if they refuse to lower the price, turn your attention to other aspects of the agreement instead in order to achieve mutual gains, such as the payment terms, discounts for bulk purchases, and after-sales service and maintenance arrangements. Feel free to explore alternatives of interest and employ areas outside of pricing to obtain greater benefits for both parties.
Request For Multiple Quotes
No matter how attractive the first quote you get is, always request for multiple quotes from alternative sourcing options in the market. Rule of the thumb is to have at least three quotes on hand before approaching one vendor for discussion. You can even consider letting your potential suppliers know what their competitors have quoted so they can put forth an even more attractive rate.
Get References From Other Customers
Carry out due diligence before approaching any supplier. Suss out their customer service level and product quality by talking to their customers. Your potential supplier would be happy to provide contacts if they are proud of the service they are giving. However, keep in mind that they are unlikely to put you in touch with a dissatisfied customer.
In addition, review your potential suppliers’ performance histories and past relationships with their retailers. Doing your homework will keep your vendors on their toes and usually the party with the most information fares better in negotiations.
Learn To Walk Away
Before walking into a negotiation, list out the factors that you are willing to compromise on and those that are deal breakers for you. Stay firm on your terms and requirements for purchase during the meeting and do not be afraid to walk away.
Also, do not give any inkling that there are areas you are prepared to concede on too early in the negotiation. Try to give the impression that you’re approaching discussions positively without revealing your position.
Furthermore, practice your ‘bargaining pitch’ at every opportunity. Remember the time you had to give a speech during class and your teacher badgered you to ‘practice, practice, and practice in front of a mirror’? They’re absolutely right, considering role playing with your colleagues as well. Develop the habit of preparing for your ‘performance’ by coming up with a list of agenda to cover and going through possible objections and points to counter them.
Sometimes, all it takes is impression for you to gain the build a rapport, gain bargaining power, and build great leverage for future negotiations.
Have Your Deposit Ready
Preparing your deposit beforehand and indicating your ability to make the purchase on the spot gets your supplier’s attention and efforts to convince you to become their customer. It also lends you a no-nonsense appearance that all suppliers would appreciate.
Familiarise Yourself With Negotiation Tactics
Learn all common negotiating tactics (both verbal and non-verbal cues) and employ them during meetings, we have some examples below:
1. Always Counter Offer
Never accept the first offer – make a drastically low revised figure in return and bargain back and forth to come to an agreement on the final sum. However, keep in mind that if you propose and insist on a low price by threatening to walk away, you may end up getting poor deals because your supplier could have cut costs elsewhere – in areas such as customer service.
2. The Flinch
Flinching is one of the oldest tricks in the book. It is a visible reaction to an offer or price, and makes the other party feel uncomfortable about the deal presented. The action also carries with it elements of surprise and even shock that a ludicrous figure has been presented. By flinching, your suppliers will offer a better deal on the spot or at least attempt to explain and justify the price they are asking for.
That being said, avoid threats and manipulative tactics because they undermine your negotiating ability. Inconsequential threats can also be tremendously annoying. They neither engender trust nor liking in the relationship and should you not be able to follow through, renders negative impressions and a bad reputation for yourself.
Control Your Emotions
Nothing puts an end to open discussions quicker than anger, pride, embarrassment, greed, or other strong negative emotion. Our sentiments often get in the way of effective negotiations. Usually, anger is an expression of fear of lack of ability to get what you want and will backfire on you should you display it. Emotional outbursts tend to escalate into serious conflicts rather than resolve disagreements.
Take note of your body language such as facial gestures and voice tonal qualities while negotiating because they often speak louder than the words you say. To describe and explain your emotions, rather than show them, is a better way to discuss terms.
Now before you knock yourself out contacting suppliers and setting up meetings, here’s a last word of advice to summarise this post – Although getting the best possible deal in the short-term is important, a good relationship in the future may help you get even better prices or other perks such as priority delivery.
Be pleasant and persistent but not demanding, and never underestimate the importance of good will.