Unless you’ve been hiding under a rock for the last half-year, you know supply chain issues have driven up costs and resulted in stockouts around the world. And, with the state of war between Russia and Ukraine further damming up the works, supply chain issues threaten to get worse before they get better. As a business, when it comes to securing good deals with your suppliers, there are a number of factors that you need to consider, or else you might risk tarnishing your reputation and relationship with customers. Ensuring a consistent source of supplies that meet your quality standards to keep your customers happy, as well as buying at a price that allows you to offer customer value and still make a profit supports your brand in the long run. So how do you gracefully and respectfully negotiate better deals with your suppliers so you can meet your customers’ needs? Here are some tips for you to consider.
Supply chain management 101
Everything consumers buy involves a series of businesses working together to deliver the highest quality products, representing the greatest value, to consumers at the right time and in the right place. IBM defines supply chain management that encapsulates this business process as:
Supply chain management is the handling of the entire production flow of a good or service — starting from the raw components all the way to delivering the final product to the consumer.
Like a well-choreographed ballet, supply chains are fragile things that exist only when all the individual parts work toward a common goal with an established set of rules. You only have to look as far at the car market to see what happens when the supply chain is out of whack. Due to a shortage of the computer chips that form the nerve center for modern automobiles as a result of pandemic shutdowns, the car market is nuts (a technical term). Some used cars sell for more than they cost new and a critical shortage of new cars means your facing a long wait if you want one. Because you can’t just build a new chip manufacturing plant overnight, this critical shortage is likely to continue through 2023. The economic impact for workers and countries reflects hardships for both.
Thus, supply chains have a big part to play in the success of your organization, its workers, and the country.
Shortages and the costs associated with them, translate into hard times, especially for folks who already have problems meeting their needs. But, shortages aren’t the only issue you need to consider when dealing with suppliers. The old saying, “you can’t make a silk purse out of a sow’s ear” is true when it comes to delivering quality to your customers. If you get crappy (another technical term) raw materials from your suppliers, you either incur additional costs transforming the raw materials into finished goods or you produce substandard products that hurt your brand image.
For instance, if you make picnic tables out of wood and your supplier delivers a load of wood that contains warped boards that contain knots in them, you must waste a lot of the material to build a nice-looking table.
Service businesses have supply issues, too
Even service businesses are affected by supply chain shortages. As a hotel, you might not have an adequate supply of toilet paper for your guests. As a restaurant, you may run out of popular dishes before you close for the day. As an accountant, you might not have access to a working vehicle to meet with clients in their offices. Your inability to meet the needs of your customers/ clients translates to a poor brand image for you and the possible loss of the business to a competitor who did a better job of negotiating with suppliers to ensure sufficient supply to meet demand.
Building better supply chains
Building a win-win relationship
Choosing the right supplier and crafting workable contracts between you and the supplier solves a lot of potential problems. Before you start negotiating with potential suppliers, make sure their values fit with those of your company and that what you’re asking for is at least reasonable.
Using strong-arm negotiation tactics to threaten suppliers into delivering at a lower cost can backfire when you consider that your relationship with the supplier looks more like a marriage where both parties must collaborate not fight each other. For instance, I once did a project with a local restaurant. The owner told the story of working with the company supplying potatoes chips to his restaurant chain. The supplier came to him warning of a potential strike by his workers that would result in supply disruption for the restaurant. He had already lined up an alternate source of supply. He didn’t have to do any of that but he did because he knew his company and the restaurant needed each other for survival. His cooperation saved both companies money in the long run and strengthened their relationship.
Unless you’ve been a client of theirs for a long time and have a strong relationship with them, suppliers really don’t care about your success. Negotiation becomes a zero-sum game where each business is out to get the most it can. But with that said, even if you do have a good working relationship, you can’t just expect to suggest a lower price or additional supply and have your supplier accept your terms. In order for your supplier to agree to your proposal, you must present something where both parties get something from a plan that’s well-researched, and even presented in a clear and professional way before they’ll even consider it.
For example, let’s say that you’re looking to secure more propane to power machines and vehicles for your business. A good way to start your proposal is to suggest buying a larger volume at a lower price or entering into a contract for a supplier to provide you with a consistent stream of the product at a lower price. The purpose of this is to show the supplier that you’re willing to commit to giving them repeat business over a set period of time. Every company loves predictable income and a supplier is no different. If you can promise a certain amount of service, then you’ve already got a good starting point to negotiate with.
Going the route of multiple suppliers
Sometimes, having multiple suppliers works to your advantage, and sometimes not.
Working with multiple suppliers works best if no one company can meet your supply needs. Sometimes working with multiple suppliers also helps stimulate creativity as each supplier attempts to become your single source of supply. However, this comes with a cost in terms of higher prices and more administrative costs.
Having a single supply source often results in a better relationship between the two companies and a better price, as you’re buying a larger volume. However, a single source also puts you at the mercy of that supplier and, if they run into issues, you may feel their pain.
While supply chain management is fairly challenging, it’s important to remember that working with multiple companies is common and you can handle that with relative ease. A logistics manager is a great help with supply issues and many smaller businesses outsource this task to 3rd party providers as a less expensive way to obtain these skills than hiring internally. Logistics and supply chain management are knowledge-heavy with a set of mathematical equations to guide optimal performance that can’t be managed by someone untrained in this area. Having someone organize and orchestrate larger logistical operations can help drastically reduce the costs of supplying your business and are more effective than trying to secure better deals.
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