Wondering how to go about negotiating with suppliers? There could be loads of ways that you can utilize to steer the wheel. Here are top 3 of them, which can effectively help you along the way. We also wrapped them up into an infographic for your reference. Check it out.
At the end of the day, you narrow down the supplier candidates to about 3 vendors. You want to get best from them and make your business most profitable as possible.
So how to negotiate with your prospective suppliers?
Before you really run into the negotiation with suppliers, you need to do your homework. Being well prepared will be a great advantage when you are in the vendor negotiations.
a) Knowing your business (Groundwork of your bottom line)
We have a post about groundwork for importing from China. It’s suggested in the final passages that you draw your dreaming supplier portrait beforehand. In this portrait, you write down some of the major traits you want your supplier to have that can best help your business grow.
These key considerations include:
- Lead time
- Payment terms
- Trading terms
- After-sales service
- Value-added service
Find out what is most important to your business, decide your bottom line, and get ready to compromise on what you are willing to accept.
b) Knowing your prospective vendor
Do some basic and quick check on your prospective vendors and get to know them. They can be surprised to find that you know so much about the company and your professionalism. So you are serious and not like other importers who just ask and walk away.
Here are some of the things you may want to figure out
- A quick SWOT analysis of the prospective supplier.
- Pay attention to the supplier’s weakness. Are other terms negotiable to make up the weakness?
- Are there any competitors of the potential supplier in the same area?
c) Research the current offers in the market
If you want to bargain with the vendors, you will want to research how the market price is like currently. Get to know what most suppliers are offering and compare with your prospective vendor. There are two obvious benefits to doing this:
- You know the offer is good or fine or bad.
- You won’t sound you are blurting out. What you are talking about is the real fact.
- You know what to expect from the prospective vendors. ( discounts, payment terms etc)
2. Decision maker
Bear in mind that it’s quite possible and common to negotiate with sales instead of decision makers. It can be quite frustrating when you talk to the sales of a prospective supplier. You get an urgent order to produce but the sales can be not quite efficient to respond and give you a firm answer right away. One of the reasons can be they are not a decision maker.
If you are negotiating online (by emails or other instant communication tools), it is especially hard to reach out to decision makers.
- It ‘s difficult to tell.
Chances are that you see tons of sales managers from the very one company you send your inquiry. Sometimes the title is sales manager but they aren’t actually authorized to give you a good discount or better offer without applying to the boss.
- Personnel management
Decision maker normally doesn’t charge to the front. They aren’t sales. Instead, they lead the team including sales.
Decision maker only stands out when there’s a special event or case, for example, if you visit the factory directly and ask to talk with the boss directly.
- Language barrier
Do you want to approach the boss and talk to her/him directly? Quite a lot bosses don’t read or speak English.
Here are some points to judge from the way they are responding and see whether the one you are talking with can give you answers directly.
- Do they mention to apply to the boss/manager/leader frequently?
- Do they mention to get confirmation from technician department now and then?
( Decision makers know much more e.g. Products, production process, technical information etc.)
3. Negotiating skills/negotiating strategy
Product price is not the most important factor in every case, but the price is most often talked about during a negotiation. Let’s take price negotiation as an example and see what skills can be used.
1. Require-graded-quotes method
The graded-quote basically means different price quotations based on different order quantity. You can ask the vendor to make a graded-quote for your reference. The following are two commonly seen scenarios that importers or buyers apply to Chinese suppliers.
(1)You are not 100% sure about your final order quantity with this new vendor. You may consider a trial order with them to test out firstly before placing bigger bulk orders.
(2)With the graded-quote, if you feel the price for your order quantity level is too high, you can try to bargain with them to where you’re happy to work with.
2. Show your potential. Show your seriousness.
Introduce yourself and your business to the prospective supplier.
a. Tell them about how you are planning your business and inform the potential to order gradually e.g. monthly or seasonal or annually.
b. If you are a regular buyer or importer, present yourself with proven track records of selling to your market.
c. Talk with them and let them know you are a serious buyer. You want to establish a long-term relationship with them. You will bring them more and more orders.
3. The local competition method
Show the potential supplier some information about the fierce competition in your local market. Indicate that if the price is high, you will not be able to make a profit and stay in this business, thus no chance to bring them orders.
4. The lower price from vendor’s competitor method
Talk with the prospective supplier that you like them but you have other options from different suppliers. One of them is 12% less unit price at the same quality level. What can be the reason?
5. The direct bargaining method
Tell the supplier that you have firm orders. If they can reach your desired price, you can place your order tomorrow. < set the deadline and press the supplier to make a decision in a short time >
6. The one step back method
These are two common cases that you can apply one step back method:
Case 1. If you are already fine with the vendor’s offer, you don’t say yes to the supplier directly. Try to bargain a little bit.
Case 2. You and the supplier are stuck at certain term (e.g. price), but you want to cooperate with them and need to find some way to break the ice.
Speak with them that if you accept your price, can they do better for you on the service term (e.g. Less percentage of upfront)
There’s no perfect supplier that can make a great offer on all terms. Get ready for some concessions. Give the supplier a bit sense of winning as well when necessary.
4.The 3 Golden Rules
As a buyer, you don’t want to be a yes-person so that suppliers make big and easy profits on you. The worse thing if you are too nice to the supplier, they will be lax when dealing with your orders.
You know what the suppliers will think about you silently?
“ Great great, he is a nice guy. He must be rich. It definitely won’t hurt if I earn MORE margins!”
These top 3 golden rules will definitely help you with your supplier management.
- Always let the supplier know that you are a serious buyer (e.g. you have ongoing orders.)
- Always ask more from the supplier (e.g. Lower price, shorter lead time, better service term)
- Always let the suppliers know you have many vendor options and they are just one of them
So what do you think? Welcome to leave a comment below and share with us about your negotiating experience.
3 gold rules can be in the negotiations to obtain a dominant position, very good advice!