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[Procurement] Three tips for your next procurement negotiation
Jocelyn Spenneman published on January 16, 2023
Although we see a relatively positive trend, the pandemic did affect companies on the supplier side of the food retail industry. Did you know that more and more suppliers are moving away from the average? This means that some companies show high risk, while others reach exceptional profits.
This emphasizes the need to dive into your procurement strategy and come up with a solid preparation for your next procurement meeting. In this blog we will provide you with three tips to gain insight in your supplier and its market, so that you can move forward with suppliers that meet your strategic needs.
Tip 1: Know your supplier
It might sound simple, but you want to make sure that you know more about your supplier than they know about you. One way to get a more thorough understanding of your supplier is to dive into their financial data. Topics you can focus on are:
- Company Size & Growth: to measure this you can look at your supplier’s Net Sales.
- Profitability & Cash: Gross Margin, EBIT(DA), Net Profit and their Net Operating Cash Flow will help you understand the price levels of your supplier.
- Financial Health: looking at Solvency, Quick Ratio and Equity will give you insight into a supplier’s risk.
- Investments: this can tell you about the possibilities to improve or develop together.
In addition to hard financial numbers, it pays to check news reports and press releases to get an overall picture of your supplier.
The fact that your supplier is facing potential risks is not immediately a bad thing. The most important part is to address it before it becomes a problem. Your procurement negotiation is a good moment for that.
Tip 2: Understand your supplier's market
It is important to understand the market in which your supplier operates. Having insight into your supplier’s playing field, gives you the tools you need to review and verify your supplier’s proposals.
Understanding their market will inform you about the fairness in the relationship (e.g. price levels), but it will also provide all your alternative options, and thus your overall potential procurement savings.
Knowing what your other options are gives you more power during your procurement negotiations. For example, are there maybe any new entrants to the market who offer a lower price? Or perhaps other parties in the market are able to offer you the innovation you are looking for?
Tip 3: Define what fits your company needs to reach a win-win
As you enter negotiations with your supplier, you want to keep in mind that the relationship with the supplier is a two-way street. Once you have a clear picture of what your company needs, the trick is to make a commitment where both parties achieve a win-win situation.
Your job is to figure out how your supplier rates you and your relationship. You want to create a trusting environment where you both feel comfortable enough to have an open exchange of information, positive or negative. By giving them the opportunity to explain any shortcomings, you create an environment of transparent communication in which you can then work together to find a solution.
Besides that, a good collaboration between you and your supplier enables you to look at innovative solutions and a valuable long-term relationship. In the long run it will improve service levels and mitigate future risks, making your supply chain more resilient.
Negotiations in procurement should strive to build this long-term relationship. When you are able to define your company needs and find a supplier that matches them, you create a foundation for a win-win solution.
Getting to know the financials that drive your supplier and their market will help straighten your position during procurement negotiations. It doesn’t just give you bargaining power over prices, but it helps you to build on a trustworthy relation for the long term.
If you want to learn more about procurement and the tools that can help you in your supplier management, download our free Procurement Report here.