Any functioning business needs supplies so that you can produce your product, but the cost of your inputs obviously eat into your profits. So, logically we try to reduce our costs and maximize our profits at the end of the day. Here are some useful tips for trying to source or negotiate with suppliers so that you, and your suppliers, succeed!
Just like a normal consumer, you should shop around to different suppliers. Getting an idea of what general market pricing is for an item will help you in negotiating with the supplier that you do approach. If you try to negotiate down to a price that is much lower than possible, you could look very foolish and your supplier will not take you seriously. On the flip side, having a rough idea of what a feasible price might be could keep you from being overcharged at the end of negotiations.
Compare Apples to Apples
When you’re comparing suppliers, ensure that the products you are weighing against each other are the same or relatively similar, and in the same quantities and unit size. Some simple math conversions can help you compare the per unit cost of your selections. As well, ensure what currency is being used for each proposal. While it’s sometimes obvious which currency is being used, it’s still an important thing to keep in mind both during purchase and in negotiations.
Send a Request for Quotation to Prospective Suppliers
Sending an RFQ to your potential suppliers is a useful way to begin negotiations. It lays out exactly what you’re looking for and in what quantities and establishes a baseline price that the supplier is willing to provide. Pay attention to delivery dates and methods or any product substitutions or suggestions the supplier makes to your order. Sometimes suppliers include lower cost but slower shipping options or product substitutions if it will save you both money, or if the product is easier to provide.
Keep it Simple to Navigate Language Barriers
Getting anything internationally is naturally going to be more difficult than walking to the local store, so make sure that the language isn’t a hurdle for you by keeping your language simple. Most international suppliers use English, but they may use translator software or have a different understanding of your words than you mean. Use common words that are easy to translate but difficult to misinterpret to prevent any mistakes.
Be Professional and Respectful
No business relationship ends up positive when someone feels disrespected. Keep in mind that your international suppliers will have their own cultures, languages and religions than yourself. Do a bit of research so you’ll know what not to do or say.
Understand Your Supplier Has to Make Money Too
Remember that your business is buying from their businesses! While you need to buy your products at a low enough cost so you can make money from them, your supplier needs to sell their products at a high enough price that they make money too! Keep this in mind when negotiating as well and don’t ask for discounts that you know your supplier can not possibly turn a profit on.
Share the Same Reality: Ask Questions
Take an active interest in your supply chain. If products are subject to price increases, shipping delays, production delays, anything; be sure to ask why. Ask for details. This can help inform you if your supplier is trying to squeeze you or there are legitimate issues causing the situation. For example, if you are buying something that requires aluminium to create and the market cost of aluminium has gone up, it obviously won’t help you to start shopping around to a different supplier as their rates will also be increasing.
Pretend You Aren’t the Boss
Negotiations inherently include a power struggle, but it’s not always wise to be the “boss.” This can help you in several ways. The idea of “bosses” leads to an image of a faceless board of intimidating decision-makers, so keep that faceless idea in their heads by not owning up to your own power. Letting your supplier think that you’re just negotiating hard to make your bosses happy, and it can give you time to “run the offer upstairs” so that you can compare deals or fully do the math on the offer.
Don’t Seem Desperate
A critical part of negotiations is to maintain your position of strength. Suppliers can smell prey and will take advantage of situations to make some extra profit at your expense. Needing product delivery immediately is a great way to let your supplier know they have an edge over you. Exposing that cost is a huge issue and if you can barely afford it could also lead you to actually paying a higher cost than you otherwise might. Suppliers want repeat business, so if they can keep costs down on this order to make another sale next month, they likely will. If you make clear that you’re broke and it’s a one-time deal they’re unlikely to make concessions for you.
Don’t Be Afraid to Say No
It’s entirely possible that negotiations just don’t get to a mutually beneficial agreement, it happens every day. At that point, you need to know when to walk away and pursue other avenues or suppliers. However, be careful of walking away from deals completely if you think you may actually have to come back to them in the future as that will let the supplier know how badly you need them. Know the right time to cut your losses!