Supplier relations are essential for the proper functioning of a firm. From a general perspective, this process consists of identifying and selecting the best-value offer for a company. This way, the firm obtains the required materials for the production of its goods or provision of services. In other words, the uninterrupted functioning of the supply chain is attained through this process. However, the matter at hand is more complex than it may appear to be. More specifically, supplier relations are limited to the identification of the most beneficial offer. In many cases, the best terms are not represented in the general papers, meaning that better conditions can be attained through negotiations. The success of these negotiations is determined by the correct approach utilized by responsible people and departments of the firm. It comprises several crucial steps that eventually enable an agreement that is both beneficial for the purchasing company and still profitable for the supplier. This paper describes the essential elements of the supplier negotiation process, while highlighting crucial mistakes often made by the parties involved.
As a matter of fact, successful negotiations tend to begin before the actual discussion is held. According to Eve Ash (2009), the very first phase requires supply managers to question the conditions they see on paper. Whenever a potential purchase is considered, the responsible employees are expected to determine whether the terms are reasonable. As enabled by the degree of their expertise, supply managers can estimate the improvements they may reasonably consider. This aspect extends beyond the discussion of price, as supply management concerns shipping time and terms, sales service, and payment options. Moreover, the considerations are applicable not only to new deals but also to existing supplier relations. Once the possibility of potential terms improvements is established, responsible units can proceed to the actual discussion.
At this point, the proposed deal is to be established, meaning that supply managers inform the partners about the preferred terms. Each point that is crucial for the firm is to be highlighted within the discussion. It is vital to have suppliers understand what is important for the company and to acquire a complete image of envisaged terms. At the same time, the second step consists of researching the market for better offers in terms of value and correspondence to the preferred conditions. The third step will help with the selection procedure, as it implies more in-depth knowledge of the suppliers. More specifically, it requires supply managers to understand the span of control and the capabilities of the other party. Once the complete picture is formed, it is possible to proceed to the actual negotiations. The success of the previous steps lays the foundation that makes these talks informed, pointed, and efficient. The exact procedure will vary depending on the profile of the other party. Ultimately, the final step of the negotiation process culminates in the documentation of the reached agreement in an official written form.
While this five-step framework may appear uncomplicated, it remains subject to common mistakes made by supply managers. First of all, Eve Ash (2009) states that the lack of research is the crucial point that is often overlooked. The emphasis of the framework is on informed negotiations that provide a sufficiently solid foundation. Negotiator should understand fully the scope of the agreement, as well as the extent of allowable concessions on behalf of the supplier to keep the discussion realistic. Second, while openness and transparency are often useful in negotiations, there is a limit to it. Divulging too much may send a message of despair, prompting the other party to insist on less favorable terms. Finally, the initial research is to form a negotiation paradigm that should be supported by the whole team. This way, negotiators will remain aligned, working in unity for the best outcome. When all the discussed criteria are met, the firm can expect the most optimal results of the negotiations with suppliers.
Reference
Eve Ash. (2009). Negotiating with suppliers [Video]. Alexander Street. Web.