Be a purchaser specialist or an accounting staff who also have to meet vendors often–hence you have to take care of vendor relationship particularly when negotiating payments delay, or even a small business owner (who don’t have to do it in this financial downturn, anyway?). What I want to say is, vendor relationship best practice is important for anyone in the financial field, and business in general.
I haven’t ever been a treasurer neither a purchasing manager in my career, but as a controller I do have to make and maintain a good relationship with vendors. And from my 15 years experience in the financial field, challenges in vendor relationship of companies are typical:
1. For many businesses, even in a normal economic climate, the prices their vendors ask can make or break them. And even if price is no object, their vendors’ abilities to deliver products or services on time, while avoiding errors or damaged products can control the fate of their business. However, if a company takes care to negotiate contracts with its vendors that protect the business, it can create a long-term relationship that will help its business grow.
2. The main issue (among many others) in vendor relationship for many companies is that they fail to understand that a vendor’s primary goal is to sell their product and grow their market share.
3. Over the years I have observed many companies fail to create win-win opportunities for themselves and their vendors. They either fail to take advantage of offers that are available, fail to create new opportunities, or feel the need to try and ‘beat up’ the vendor for pricing and terms. To truly be successful in negotiations one must understand not only their own business but that of their suppliers as well.
A Few Tips For Price Negotiations
So, price remains a major consideration for you (and for me too, of course). There are some steps you can take to negotiate a lower price. But before going for price negotiation, determining your position Vs vendors is they key. And knowing what your priority (price/quantity/lead time/payment term?) is, enables you to come up with a solid bargain. Once you’re ready:
1. You have to offer something that your vendor finds worthwhile, of course: pre-payment or payment within ten days of delivery, for instance, can be useful in negotiating a price lower by anywhere from one to five percent.
2. Purchasing products in larger quantities can also help you negotiate a better per item cost. Many vendors will offer quantity discounts as a matter of course, but you may be able to negotiate even better terms.
However, it’s usually easier to negotiate these lower prices if you have a long-standing relationship with your vendor, which just makes building a lasting agreement more important.
Price is Not Always The Bottom Line
As long as you’re getting a price from your vendor that is close to market prices (and supposed to your standard as well), you may not have a lot of room to negotiate on price, have you? Not really, you still have a room to negotiate: the payment term!
While it rarely hurts to ask, it’s hard to negotiate better payment terms if you never even start a negotiation. So start it—is always worth thinking about what terms would really benefit your company, after the price.
A lower price might not be the best deal. If, for instance, you can negotiate a longer window in which to pay for the products or services you purchase, the price may not matter as much as if you have only thirty days to turn around payment. Think about what you really need in order to make the most money for your company. Of course, if a vendor offers you a price well above what you could expect to pay to another source for the service or merchandise you need, it makes sense to come back with a counter-offer more in line with market prices.
Focus on driving an equitable bargain, though. Getting the absolute best price can have consequences, especially if a vendor must cut corners in order to afford offering that price.
Think About The Next Few Years
It’s also important to think in terms of working with a vendor for years, particularly vendors who have been loyal to your company for years in the past and are able to maintain their quality. If you’re willing to take the focus of your negotiations off of price, your vendor may be more interested in working with you in the long run.
Try to arrive at a fair price that allows the vendor to pay their bills and make a profit so they stay in business, rather than pressing and pressing for a cheaper price. Don’t overpay, of course, based on what prices the commodity sells for elsewhere, but act like you want a long-term relationship and I am positively sure that you will build one.
Vendor Relationship Management (VRM)
It was September 01’ 2006 when Mike Vizard coined for the first time about Vendor Relationship Management (VRM), on his conversation with Doc Searls about the project Searls had recently started as a fellow at the Berkman Center for Internet & Society (Harvard University).
Vizard saw Vendor Relationship Management (VRM) —a category of business activity made possible by software tools that provide customers with both independence from vendors and better means for engaging with vendors, as a natural counterpart of Customer Relationship Management (CRM).
In its description of ProjectVRM, the Berkman Center says “The primary theory behind ProjectVRM is that many market problems (including the widespread belief that customer lock-in is a ‘best practice’) can only be solved from the customer side: by making the customer a fully-empowered actor in the marketplace, rather than one whose power in many cases is dependent on exclusive relationships with vendors, by coerced agreement provided entirely by those vendors.”
VRM tools provide customers with the means to bear their share of the relationship burden with vendors and other organizations. With VRM operating on the customer’s side, Customers are also involved as participants, rather than as followers.
Doc Searls believes VRM will help create what he calls an “The Intention Economy”—described the first time in an essay by that name in Linux Journal. There he writes, “The Intention Economy grows around buyers, not sellers. It leverages the simple fact that buyers are the first source of money, and that they come ready-made..”
Searls also sees VRM addressing some of what he calls the “unfinished business” of The “Cluetrain Manifesto”. Referring to the Cluetrain’s preamble, Searls says “We are not seats or eyeballs or end users or consumers. We are human beings—and our reach exceeds your grasp. Deal with it.” (Source: Wkipedia).
Relationships that Lead To Exclusive Opportunities
If you have a good relationship with vendors, your company could be benefited in ways beyond improving the margin between ‘the prices you buy your merchandise’ and ‘what you sell them for’. Consider the following situation for a better view of what I mean here:
Because of you maintain a good relationship with vendors, one of them may offer you a private label option: the vendor manufactures products under its own brand as well as with your company brand. Isn’t this a good opportunity that your company is able to sell two different products to your customers? Let say the products are essentially identical, but your customers are able to buy a product that has your company name on it, which creates additional sales (and hopefully profits) for both your company and your vendors.
The ability to work together with vendor allows you to create a team effort that can allow both of you to increase profits, no matter what price you’ve agreed on. It’s worth asking your sales representatives what opportunities your vendors can provide, especially as you work with them over time. Many representative offices will go the extra mile to let long-term customers know about special deals and programs.
There are ways to negotiate with vendors that will provide you with a financial incentive beyond a lower price, however. Especially if you’re selling merchandise retail, many vendors will do what they can to help you sell products — and keep coming back to buy more. You’ll have to look at what options would best be able to help your business, but many vendors will help if you just ask.
Have your vendor find your customers. Most manufacturers do not sell directly to dealers or installers. They are however, frequently approached by these potential customers and if you let them know you are receptive to working with them the manufacturer will often be in a position to send customers to you. If you don’t ask they generally will not think of it on their own. Many manufacturers and suppliers are happy to provide a link to your company’s web site, list your company as a distributor of their products, pay for half or even all of your advertising for their products.
So many ways you can see and do with vendors to get benefited and grow together, when you have a good relationship with them. So, how do you develop and maintain better relationship with vendors?