You are working with a supplier and you need something more. Whether it is better pricing, more services, faster delivery … it is important to you and your business. But you know you do not have any real leverage to the supplier, they are much bigger than you. And so far they have not exactly been jumping up and down, excited to give you what you want.
So what do you do? How can you get what you need, even if you can not offer them huge amounts of new business, or threaten them with the pain of losing your business?
Negotiate With a Big Supplier
PREPARATION : Do your homework
- Start with a good relationship. Negotiating with someone who does not care about you one way or the other … this is not a good situation. Treat your suppliers like a real partner, this means spend time on developing a relationship with them, ex: not just talking about price all the time.
- Head upstairs. As a customer, get a high level relationship – it does not need to be the CEO. The VP/Head of Sales, of Operations, or Regional/Country Heads can all be great partners. Get the executive emails and introduce yourself. Set up a short introduction call about how things are going and why your company is great and they are part of it. This gets you on the radar of the execs. Later when Sales has to explain that you want something more, you are not just a random, small revenue name on a spreadsheet.
- Know what motivates your supplier. Is your supplier growing in their market? Do they want to be? Are they hungry for new business or just happy as is? Look online, and how they promote themselves. What are they emphasizing – their innovation? Their sustainability? When you talk to them, find out what the world is like from their perspective, and where they struggle. This is a classic step in negotiation but especially when you don’t have any leverage, focus here.
- Understand and use the impact. Why do you need what you need? If it is crucial to success in your market, it is important for the supplier also. They have a vested interest in making sure you do well : Lean on their role in your success, show them how they contribute to it. If it is just a “nice to have” or will help only your own profit margin, this is harder.
- For cost topics : Develop a “should cost” model. This when you as a customer calculate what you think “should be” the costs of an item, and have the supplier justify the differences that make up their price. They will need to tell you which areas of your estimate are wrong and why. Even if your model is insanely inaccurate, it is the discussion of what specifically drives cost for your product that is super helpful in a negotiation.
YOUR NEEDS : Be flexible to get what you want
- Prepare what you can offer them. You do not have high volume, but what else do you have? Connections to industry groups? Are you are tech savvy, your team could come give them a day of training or tips? Could you host a workshop on taking risks? Figure out what you are really good at that they are not, or what you have and they do not. Startups are a pretty magical thing to many big companies, who struggle to be agile. Sometimes what resonates with them will surprise you.
- Ask them for help. What ideas do they have to lower your cost, or improve performance or extend your cash, or whatever it is you are trying to accomplish? What could you change on your end that they have seen other customers do that worked? They know you are small, and often will be happy to help give you ideas on what to do.
- Review your product design with them. Really take a fresh look at your design with an open mind. Could you change things if it make it easier or faster to manufacture? What if you changed it so they could find cheaper or more easily obtained raw materials? The entire principle of DfM (Design for Manufacturing) is based on the immense power of adapting the design itself. No one ever likes to change their design, but sometimes the payoff is immense.
- Review your process with them. Same as above for product … what are you doing with them, in the way you are doing it, that could be adjusted? Should you bundle orders differently? Provide them a forecast? Ship in a different way? Have them help solve your problem.
- Be open to changing your approach. Sometimes the supplier actually can not help you directly, you need to be the one that changes to get what you need. I know a company that at first insisted on custom designs, resulting in long lead-times. After failing to negotiate better lead-times from the supplier, they were shocked to find customers would actually prefer standard designs, not only faster but also cheaper.
OTHERWISE : Look at Plan B
- Set up alternate suppliers. For sure it is extra work on your part to get another supplier up and running. But the benefit of having someone else ready to go not only decreases your risk, but also gives you the ability to confidently compare pricing, terms, service and quality. You may find out after trying to negotiate, that your current supplier will just never be the partner you hoped for. Or you may find out they are actually already giving you a better deal than you thought.
- Just live with it (sorry). Sometimes you have a product that you can only get from one place, and the price or terms or lead-time from that supplier just is not what you really need. And no matter what you do, they will not budge. This does happen, more often than any of us would like, and there is no magic solution in that case, you really just have to live with it.
See also my post on How to Get Your Supplier to Pay Attention to You.
Some great links that I recommend for further advice on how to more effectively negotiate with suppliers :
- A good view of “should costing” and how it is used effectively in negotiations : https://www.industryweek.com/supply-chain/procurement/article/21959535/your-shouldcost-number-is-wrong-but-it-doesnt-matter
- Good tactics from other Founders : https://www.inc.com/young-entrepreneur-council/tips-for-negotiating-with-a-supplier.html
- Nice overview of DfM : https://quality-one.com/dfm-dfa/