Supply Chain Vendor Negotiations: Build On Trust, Not Price

When negotiating with a supply chain vendor, it's incredible how shaving one or two percent off the price of each unit can have a major impact on the bottom line. Whether you're one-time pallet shipping 500 lightbulbs, or you're putting together a five year contract for the supply of hundreds of thousands of products and parts, it's important to know how to negotiate a win-win situation for you and your supply chain vendors.

In recent years, the supply chain has gotten more competitive, while negotiation styles have been changing. Instead of making long lists and finding the lowest prices from vendors' catalogs, consider turning to a single-sourcing agreement.

Facilitate a constructive discussion with your supplier regarding price reductions, quality of products and vendor-customer satisfaction. Single-sourcing will allow a vendor to offer lower prices, while building a close partnership will allow for a number of advantages when problem solving-- mainly, that the vendor and the customer will tackle issues together, with shared benefits afterwards.

Focus on building a relationship of trust and openness between your company and your supply chain vendors. An article at Business2Community clearly pointed out, "When a vendor has a holistic view that includes the customer-side supply chain with access to indicators such as stocks, distributor and retailer orders, it can increase its own efficiency, lower its costs, and make savings available back to the customer."

As the negotiation process is often a predictor of the relationship that will follow, make sure you start off on the right foot. The team needs to be agreed upon beforehand by the team and management.

Some items to negotiate might include order forecasts, order priority, lot sizes, load variation, prices and cycle time. Make sure, too, that you know what the business needs and offerings are of the vendor. Know your musts, wants, and nice to haves are, and stick to them.