Negotiate with a key vendor
Charlotte Business Journal - by Bea Quirk Contributing Writer
The wise way to negotiate with a key vendor is to take the long view, rather than treating the deal as a single transaction.
“In the long term, it’s in your best interest to form a relationship that benefits each party,” says Tom Conroy, owner of TEC Strategic Partner, a local business-consulting firm. “If you hammer someone every time, when you are in a weakened position, and they have the upper hand, they will take advantage of you because of the beating you have given them.”
Tehseen Ali, chief executive of software firm Verian Technologies, says, “Getting the best deal is only part of the equation. If the vendor ends up losing money on the deal, they won’t be enthusiastic about dealing with you in the future.
“The key part of negotiating is creating a win-win situation.”
One way to do that is by carefully tracking all your purchasing so you know how much you buy and when you buy it, as well as how and when you pay for it. That can be done with a variety of software programs.
“It is particularly advantageous for a small company to provide the vendor with an accurate picture,” Ali says. “It allows you to negotiate a better agreement and then manage it better.”
That approach also can help you determine more efficient and cost-effective purchasing schedules and decide whether less expensive items might meet your needs. A vendor may be able to supply you with several products instead of one.
However, a small business often doesn’t have much leverage, especially if the vendor is a large, national firm.
“They will generally force you to use their legal agreement, which is generally not a problem,” says Paul Wetenhall, president of the Ben Craig Center, a business incubator affiliated with UNC Charlotte. “But they are sometimes willing to modify the terms. If you are uncomfortable with it, see a lawyer.”
Before you sign anything, “it’s important that everyone agrees on the key business terms and objectives well in advance of seeing an attorney,” Wetenhall says. That includes quantity, price and delivery schedule. But it also entails clear measures of performance and material quality, and a system to resolve discrepancies or disagreements.
“Set up a series of remediation and arbitration (steps) before you end up in court with lawsuits, which is expensive and destructive,” Wetenhall says.
Conroy says you should take the time to understand the forces affecting the vendor and the points of leverage you might have. “If you rush through a negotiation, you may not get the best deal.”
Make sure you are negotiating with an individual who has the authority to ink the supplier agreement. Plus, Wetenhall adds, “Don’t depend solely on a personal relationship with one person. Build a network of contacts.”
If you get vendors to accept less-than-favorable terms on a deal, give them a good reason, Conroy says. For example, you could stress that the initial contract will likely lead to additional deals with your company.
And if you make a concession, “make sure you get something in return,” Conroy adds.
Wetenhall advises against “falling in love with your supplier prematurely.” So talk with alternative vendors. In fact, he recommends always using a second supplier for critical materials.
“If you deal with one supplier, you can get a better price, and it’s easy. But it’s also risky if availability becomes a problem.”
TOPTIPS
•Negotiate not just for the best deal but for one that will help you develop a long-term relationship.
•Understand your purchasing needs.
•Have a clear understanding of price, quality, delivery dates and measurable quality requirements. Include a system for resolving disagreements with the vendor.
•Establish a relationship with an alternate vendor, especially for crucial supplies.
Bea Quirk is a Charlotte-based free-lance writer who can be reached at beawrites@aol.com.
