Supplier negotiation has become an intrinsic part of the supply chain process, and for a lot of companies, this could be the most critical process in the whole chain.
A supplier negotiation could commence from the time the initial communication is made with the supplier like Carrier, Freight Forwarder, Haulier, Warehouse and many more suppliers involved in the supply chain, until the actual signing of the contract.
Therefore, it is imperative to efficiently plan and execute this vital supplier negotiation.
1) The first step towards efficient supplier negotiation is to set your priorities right in terms of:
2) The next step would be to understand the capabilities of the potential suppliers in detail and more about their processes such as:
3) Drum up an elite team for your supplier negotiation. This is very important as these are the people that can make it happen so they need to have a good balance of:
The experience, and the expertise to take a holistic view, to avoid sub-optimization - driving down costs on certain services that inflicts a higher cost increase somewhere else in the supply chain.
4) Develop strategies and tactics which must be discussed internally with your team:
No matter how well you have planned and how good your team is, the success of the deal will depend on how you execute your plan and use the prepared information.
5) One of the key aspects of good execution is to have rehearsed your pitch or discussion points. It is of utmost importance also that you have a point man to spearhead the negotiations.
In a negotiation with the carriers there may be certain volume, route or competition information that you may need to be selective in sharing. Ensure that your entire team is aware of these points and the team leader should decide which information to share and when.
6) At the negotiation table, never accept the first offer and remember to test the waters and see how far you can push your suppliers and assess the reactions at each stage. Maybe even have someone on your team do only these assessments and gauge the position.
7) In certain cases, letting the carriers know who their competition is may also trigger some positive reactions from them, but it could also just as easily go the other way if the carrier you are playing hardball with knows their opponent’s weakness. So, you need to be very alert at the negotiation table and know how to steer the negotiation process.
8) Where you feel your volumes on a certain route may not be that big you may make a good use of the rate, lane and benchmarking information. Try to leverage that knowledge in seeking some concessions on the rates. This way you remain fair and can seek some concessions from the carriers on other routes.
9) Obviously, you need to use different strategies and style of negotiations with different carriers. For a long-term relationship with the carriers it is important that the results of your negotiations are cost-effective, durable and satisfy both parties. Remember, shipping is a two-way street.
10) Avoid discussing opinions and whenever possible try to have data available to get an objective perspective into the negotiations. It's easier to sway any conversations in your direction if you have data to back up your arguments.
In conclusion, a proper supplier negotiation involves effective and clear planning, meticulous preparation of the requirements and needs a clinical execution of the plan.
With proper planning and preparation, you may find that everything is negotiable, but the ones that will get the deal are the ones that are able to bargain and execute the plan effectively with hard facts.
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