Management - Negotiating With Suppliers
Tips For Getting The Best Deal
Just because you're a small distributor – even a one-person shop – doesn't mean you have to accept whatever terms or services a supplier offers. You have the right to negotiate.
"I think it's important that you do negotiate, just like our clients are negotiating with us," says Danon Middleton, director of program accounts at Counselor Top 40 distributor Summit Marketing (asi/339116). "If you're a distributor and you don't negotiate with your suppliers, I think you can be leaving something on the table."
Not sure how to approach a negotiation? Want to improve your negotiation skills? Here are some strategies you can put to use right away.
Vet Potential Partners
Scott Gerber, columnist for Time magazine and author of Never Get a "Real" Job, believes you have to get a feel for a supplier before you make initial contact. "I never waste my time with any vendor that I can't independently verify to be a quality provider – whether that means speaking to members of my organization or my social network – just to make sure that those companies have great reviews from people I trust," he says.
Middleton says distributors must also have a solid grasp of each supplier's specialties. "You need to understand what merchandise categories they cover. They may be item-specific," she says. "Maybe they're a cap company and that's their only thing. Then, you have other companies like Polyconcept or Norwood (asi/74400) that cover all kinds of merchandise categories. You need to know what they've done in those categories so that, when you're negotiating, you can speak intelligently. They'll know that you mean business and know what you're talking about, and they're going to be willing to talk with you."
By the time he's ready to begin the negotiation process, Gerber prefers to whittle down his list to three potential vendors. "Two is a little limiting to me because I think you just get a better idea of the market if you see a low, medium and high provider, and then you can make the best choice for your business," he says.
Gerber suggests contacting all three suppliers to get their basic rate information – without divulging too many details about what you're looking for. "If I know I'm doing an order of 100 of a product every month, then I may ask what the price ranges are between 50 and 200, just so I have a general idea of the low and the high end," he says.
This will give you two crucial pieces of information: whether a supplier's pricing is in line with what you're looking for, and how quantity affects cost. "Let's say that, for 50, it's a dollar a unit, and for 200, it's 80 cents a unit. I now know that I can go in and negotiate for a low price when I go back to them because I know they have a bulk discount," Gerber says.
Narrow the Field
Based on his initial phone conversations with three potential suppliers, Gerber will narrow his decision to two finalists – but not before giving the odd vendor out one final chance to get back in the game. "As long as it is a quality vendor and still someone I would work with, I will offer them a deal to do something that I don't think they'll accept," he says.
This strategy is a win-win, according to Gerber. "If they say yes, I now have something I can go back to the other two vendors with because they've just taken the unbeatable deal," he says. "If they don't take it, it's OK because I wasn't planning on working with them anyway. I just wanted to see if that vendor would go for an incredible deal on my part, or slightly above it, just to see if I can still make a deal that makes sense. And if not, no harm, no loss."
Weigh Other Costs
Of course, negotiations aren't entirely about price. Once he narrows the field to two contenders, Gerber will consider the better of the two deals from a pricing perspective, but see if the other vendor will beat it. "If they won't, I'll ask, ‘What are you offering me that the other guy is not?' " he says. "That way, I can get a better sense of service, timeline for quality, and other kinds of variables that may make it so that their service deserves more money."
The fact is, for some distributors, the peace of mind in knowing a supplier offers a 24-hour fulfillment option may outweigh the additional cost of 10 cents per unit that a supplier wants. "If you see that Person A is more expensive but offers more service, and Person B is cheaper and has lesser service, but you can live with it – that's how you make your decision," Gerber says.
Put It All Out There
Negotiating all costs upfront – including price per unit, shipping, setup charges and rush orders – is as important to your potential supplier partner as it is to you.
"If you do it in a fragmented way, I feel like the supplier is going to think, ‘When is that other shoe going to finally drop?' They're always going to keep coming back asking for more and more," Middleton says. "What's best is to say, ‘Here is what we'd like to have as far as our agreement goes,' and lay it all out on the table at the same time. Look at it this way: As a supplier, you have to make money, too, and they need to know what they can afford to give in this partnership agreement and still make money. If you keep going back and nickeling and diming, then they never know where they stand. That's how I would feel if I were a supplier."
Build a Symbiotic Relationship
Along those lines, while distributors should certainly look for the best financial deal in order to maximize their profits, Marsha Londe, owner of consulting firm Tango Partners, says they must remember that suppliers are in the same boat – they need to make money.
"Suppliers are our business partners. Regardless of our creativity, expertise and attention to detail, we're only as good as our suppliers make us look," she says. "The negotiating objective is not to take away the supplier's profit, but to arrive at a mutually successful proposition. With that understanding, each side can share what would help performance, as well as profitability."
Middleton says distributors also need to keep in mind something else suppliers want – access. "They want to have access to your sales teams, to your merchandisers, the folks involved in programs, and your decision-makers who are deciding what to buy," she says. "If you provide access to decision-makers, that's huge. I've talked to a lot of different suppliers, and that seems to be what they're all saying – they want to have that access."
Letting your suppliers know from the get-go that they'll have that kind of access in your company will help you to meet your goals and begin building a successful two-way relationship. Suppliers will likely do as much as they can to make you look good – which is just as important to your bottom line as price negotiations.
"It's always wonderful to go to trade shows and things like that, but working with your supplier rep, that's another key piece, I think, that really creates that solid relationship," Middleton says. "I don't know what we'd do without our supplier reps. They help make us look good to our customers."