Are you seeking more flexibility in the working capital for your business? Are you striving for stronger alliances with suppliers and vendors? Do you have proactive goals for a more competitive market position?
They are respectable objectives of most any business. Yet many businesses overlook a viable opportunity to achieve such goals: an open, honest, and mutually beneficial negotiation with suppliers.
The following guide can help you utilize this art to your advantage.
Align on Goals
Is your supplier aware of the short- and long-term goals and objectives you have for your business?
Are you familiar with theirs?
A thorough, holistic understanding of the overlapping landscape between your business and its suppliers can help set the stage for discussions that will deliver the best terms and conditions to both parties.
In other words—though clearly not all objectives will align—strive to work from a place of trust and respect rather than an oppositional stance.
Once established, this foundation can allow you to build further cooperation into your relationship. For example, are your suppliers aware of your new target markets? Can they provide any market intelligence or observations they’ve gleaned from their experience serving an array of customers? Their participation is a basis for aligning their objectives with yours.
Integrate With a Purpose
Wherever and whenever possible, integrate systems, processes, and operations with your suppliers to build efficiency and synergy.
This could be via EDI, order release, inventory, or other systems that communicate with each other to help both sides. The heads-up makes it easier to plan ahead and build efficiency into orders and operations, which provides an incentive for better pricing, terms, and conditions to improve your working capital—and theirs. Make this discussion part of your negotiation.
Focus on Order Fulfillment Efficiency
Working with your suppliers to improve order fulfillment will improve delivery timing and consequently payment times, providing a boost to available working capital.
As you navigate this process don’t forget to:
- Negotiate product delivery. Can you receive product in new ways that potentially reduces labor, capital and peak time capacity for your suppliers? Gaining an understanding of your supplier’s pain points often elucidates achievable accommodations and solutions. Bringing such enhancements to the negotiation table can give you a stronger hand when it comes to your own needs.
- Bundle and consolidate orders where possible. Consolidation may allow suppliers to produce more efficiently and pass their savings in time, labor and materials along to you as a concession. Communicate your willingness to bundle and consolidate in your negotiation.
- Tweak volume and supply cycles to their advantage. Are you able to commit to more volume and longer supply cycles? If so, do just that. Further, guarantee a specific volume of the product and/or adjust the delivery time to one they can manage efficiently if possible. Bring this willingness forward in your negotiation in return for more favorable prices, terms, and conditions.
Prepare With Partnerships
Before a negotiation, work with trusted partners, banks, financial institutions and advisors to surface areas of flexibility that can help you meet your suppliers halfway.
A strategic partnership with a bank or financial institution can be valuable in the following areas:
- Treasury operations best practices regarding receivables and payables.
- Solutions that automate receivables and payables to expedite operations with suppliers and enhance negotiations.
- Credit terms and interest earning power to create the most favorable equation of supply chain working capital after you’ve negotiated better pricing, terms, and conditions.
The Strategic Benefits
Negotiation requires significant time, effort, and thoughtfulness. The gains, however, can be well worth that investment. By taking the strategic approach you can lower the cost of operations for both you and your suppliers—that win-win approach will produce enduring results, reducing the need to negotiate constantly.
In the big picture, a carefully planned and successful negotiation can encourage competitive strength. An enduring, trust-based supplier relationship is hard to duplicate, providing you a competitive edge in your market.