This guest post was written by Supply Chain executive Paul Rea. Paul is a senior supply chain leader with over 20 years of experience in industrial chemical and consumer product environments. He is the previous Co-Chair of the Chemistry Industry Association of Canada (CIAC) Rail Committee and member of Transport Canada’s “Commodity Supply Chain Table” representing the Chemical sector.
As purchasers and vendors of goods and services there is always the drive to get the Most Desired Outcome – price, service reliability, stability, longevity – whatever the respective party’s objective(s) are. This can be a singular or simple serial endeavor in a lower value or transactional environment and an ongoing business relationship isn’t always even present. Its very different with a strategic or critical sourcing/service consideration. You are likely managing multi year, potentially renewable activities through more complex business and personal relationships.
I’ve heard purchasing professionals express concern that a tough ask or “driving a hard bargain” will damage a valuable relationship. I say if you fear your ask will ruin the relationship then the relationship isn’t valuable (to the company) in the first place. Conversely – to keep the vendor “on their toes” some managers will shy away from building a relationship for fear the familiarity weakens their position. Nothing could be further from the truth.
Regardless of what type of customer/vendor relationship is appropriate for your activity, here’s how to make sure you are getting the best out of it even while leveraging the vendor to aggressive goals. These concepts dovetail well with the various tactical 5-7 step purchasing and negotiating models (Prepare, exchange, negotiate, close, etc.) but here I’m more focussed on the foundations those tactical activities sit on.
Set yourself up to be the customer of choice.
Customers need to understand that (despite the “customer is always right” mantra) vendors have options too and will make decisions based on their own requirements, perceptions and alternatives. Respect your business partner and partnership and put as much good will in the bank as you can right from the start. Build a reputation of competence, honesty and integrity. You want your vendor to respect you and your organization and see your business as intrinsically desirable and valuable. Misleading or bullying a vendor can work when they have limited other options – because of market of competitive parameters – but you can be assured that they will cease supporting you the instant those parameters change to their favour. Likewise respect their time and effort. Dithering, indecision, constant directional changes or repeated “studies” will all challenge your partners’ commitment to you and your interests.
This is critical in the preparation stage while determining your negotiating envelope and strategy itself. There is an old axiom in the construction industry: “price, speed, quality – you can have two”. We all know that person/company who continually asks for every benefit and wants every penny in their favour in the process. “Asking for the stars to get the moon” is a well-known tactic but is transparent and wears thin over time.
Know what you really need and why you need it. If you get it will it truly make a difference, or is there a risk it won’t fully create the anticipated benefits? Expect to potentially communicate that to stakeholders depending on the corporate sensitivity of your plan. Because you’ve set the stage with integrity already, your partner will come to know that when you push hard you have a tangible goal – not just to get as much as you can. Remember you are using “relationship” capital. Spend it wisely.
Related to this is making sure your vendor is suited for the basic task. Don’t jam a square peg in a round hole and set up you and your supplier for failure. Selecting them solely because you have a good relationship is just as wrong as not having that relationship in the first place. Be realistic about their capabilities not just your expectations.
Be willing to help them help you.
Vendors are not mind readers. Don’t divulge corporate secrets and sensitive strategies of course, but certainly share what you can. You can help them help you by providing clarity and additional information regarding your proposition, potential complimentary concessions (although maybe not out of the gate) or creatively brainstorming options to remove or mitigate the barriers to giving you what you need. If you’ve done your homework and you are being realistic you’ve likely already established that what you’re asking is technically possible even if its initially outside of what you might have assessed their negotiating envelope was. So now you’re just trying to influence them to do it.
Do everything in your power to demonstrate to your partner why helping you is good for them (increased or preserved market share, new market penetration, product innovation, etc.). Imagine asking for a price concession from a vendor that is not necessarily market driven, but because of your own competitive pricing pressures. Could you demonstrate how this will open new areas of your business for them, or perhaps preserve business that would otherwise be lost to a competitor of yours that is in turn supplied by a competitor of theirs?
This level of sharing is the sweet spot of why the good relationship and trust is so critical. It’s simply easier to get delicate information from them and your pitch has more credibility. Also, if it truly isn’t possible, they are more likely to share the real reason.
Its not necessarily built for the good times.
Remember that relationships are built IN the good times but built FOR the challenging times. All you are really doing is setting the stage for when you must ask for something undesirable or difficult, or something goes operationally wrong (and it will). The quality of your relationship and the value it brings to your respective organizations is only tested and proven then. Build your relationships for the toughest, most impactful times and leverage it the hardest in those periods. That’s what its for.