If you are involved in supplier negotiations long enough, you are likely to encounter the difficult position of having to negotiate a deal when you have little to no leverage. This situation is made worse if you are under pressure to negotiate a specific outcome such as cost reductions, improved product quality or service levels, reduced liability, etc. Negotiating is a process of movement. In some cases, you will find that the supplier is not willing to move for a variety of reasons. You may have limited mindshare at your supplier due to the size of your business, be dependent on a certain technology or service that only they can provide, or have a supplier that is shortsighted, prioritizing today’s dollars over tomorrow’s potential. Sound familiar?
No matter the reason, when you find yourself in this predicament, you will need to be extra creative and persistent to find some points of leverage that allow you to negotiate. In our practice at Symphony, we are often called upon by clients to deal with this type of difficult situation. From that experience, we have been able to glean a few approaches that can help. To be effective you will need to make these approaches part of a broader effort to prepare for negotiations that may include key steps like outlining a solid negotiation plan, identifying key influencers and their roles, articulating the "musts" and "wants", analyzing your BATNA (Best Alternative To No Agreement), and using financial analysis to determine the value of various alternatives. As you put together your negotiation plan, here are three approaches you can consider to move the needle in your favor:
Expand the pie to find areas of leverage. While you may be negotiating on a specific deal, explore the possibility of expanding the scope to other areas that might get the supplier’s attention. For example, in one of our recent negotiations for IT services, the supplier showed no interest in reducing its costs to meet our client’s targets. However, as we began discussing other services that could be awarded to them, the supplier’s mood and spirit of cooperation suddenly changed. In another situation, our client was completely dependent on their contract manufacturer (CM). When the CM increased pricing due to a slight drop in forecasted business, the customer felt they had little choice but to accept the higher prices. We were able to expand the conversation to include a new generation of product that was under development. The CM wanted to be involved in the next generation product and the broader scope of the discussions gave the customer new leverage to reach a fair settlement.
Tap into resources that have more leverage than you do. If you are a tier-one company, you can gain the support of your corporate organization or call on other divisions and business units that use the same supplier to lend their support. By leveraging the total pool of dollars for your company and by demonstrating that you are in communication with other entities within your corporation, your negotiation power will increase dramatically. If you are a smaller company or a unique business unit that cannot pool the resources of multiple divisions, consider using outside resources – such as resellers, consulting firms – that may have more leverage with your supplier. We have often seen a shift in the supplier’s behavior when a third party enters the picture. The supplier quickly realizes that how reasonably and fairly they treat their customer may have a direct impact on whether they are considered in sourcing projects in other consulting engagements. The same holds true for resellers and distributors since they can easily promote one supplier over another.
Negotiate a short-term deal as you search for a longer term solution. There are times when neither of the paths outlined above will work for your situation. Your supplier has the power and they are only interested in maintaining your business on their terms. In those cases, your best option is to buy time until you can get to a better solution. To do that, you may have to create a shorter-term contract to allow yourself enough time to find another supplier or another solution. For example, you may be able to create a bridge agreement with a contract manufacturer until you are able to find an alternate source for building your product. Or in the case of a software supplier, you may choose to pay a premium for annual maintenance and support under a one-year contract so that you will have the freedom to move to a new solution at a later point. To avoid getting in the same position again, consider bundling maintenance with a new purchase and pre-negotiate future prices for licenses and maintenance.
Negotiating with suppliers or any other business partner is most fruitful when you both have a win/win mindset. But there are times when the supplier is more interested in capitalizing on a certain situation than looking for the longer term "win". Your challenge is to creatively arrive at solutions that change the playing field, motivating your suppliers to step beyond what is at hand today.
Negotiating with suppliers and dispute resolution are among the core of our services at Symphony Consulting. If you feel that we can be of assistance, please contact us at info@symphonyconsult.com.