All too often, businesses and organizations focus so much on trying to saving money, they fail to reflect on how they can be more appealing to the suppliers they are approaching. If a supplier considers you to be an appealing client, you can easily save (significant) additional money.
Here are some ways to attract a better deal with suppliers:
Outline your expected purchases
If you ask a supplier for a price but don’t provide context, they will hedge their risks and provide conservative discounts. If you can describe your annual spend and details on all the common items you purchase, future growth, etc., then the supplier can understand your needs better, understand their margins better and give you better pricing. This level of information can only be provided after completing a thorough analysis of the last year of spending.
Reduce Supplier Risk
This sounds counter-intuitive but it is really important. Anything that you can do to reduce the risk of your supplier can help them trim their margins in order to retain or secure your business. Some things to describe are: seasonality, product mix, order size for individual items and average order size. Consider the supplier’s perspective: What would you want to know from your prospective clients?
Pay quickly (or at least predictably)
Cash is appealing to any business and prompt payments will make you more appealing than other clients. (Quick payments can often give you quick-pay discounts as well.) The speed of payments depends on the expense category, for example temporary labor companies must pay employees weekly so invoices must be paid immediately. If you insist on 45-day terms, supplier pricing will be higher. In general, paying net 10 makes you very desirable, net 30 is good, but slower payments make you less appealing.
Aggregate your spending
Obviously, the larger your spend with a supplier, the more appealing you are but there are thresholds where you become a lot more appealing. $100K is the threshold where you are typically identified as a good client for many expenses (like office supplies, telecom, MRO…). Are there ways to aggregate spending from multiple expense categories to bulk up a spend? Can you aggregate multiple supplier spends to a single supplier (or at least fewer suppliers)?
Don’t negotiate every item
Some companies price shop every item they purchase. For the frequent and larger spends, this investigation makes sense but often, the payback on investigation and negotiating every single item can be a waste of time and makes you a nuisance to deal with. If you focus on price too much, the supplier will (rightly) think that price is the only factor and will assume you won’t be loyal.
Keep the project moving quickly
If you can contact suppliers, ask for quotes and make a decision quickly. By doing so, you will develop and maintain momentum. Delaying is rarely beneficial. If things drag out, suppliers will lose interest and it will be harder to reignite. In addition, if you can keep the project momentum high, you will capture savings that would have been lost each month.
Show your willingness to switch suppliers
Incumbent suppliers don’t usually believe you will leave them and conversely, new suppliers don’t really believe you are willing to switch. The longer your relationship to the current supplier, the stronger these feelings are. You need to be willing to change suppliers, if it is financially worthwhile.
Pick the right supplier
Each supplier has their own particular strengths (either in goods or services). If you understand what your top needs are and then you find a supplier that has those specific strengths, you will be mutually attractive. Figure out your needs and make them clear.
Be exceptionally well-informed
Suppliers appreciate clients that are well-informed because informed buyers are easier to deal with, are more realistic in their expectations and are better references. You need to understand the category under review, the nuances of that industry and its operations and the best practices that are used within that expense category.
By following the above-mentioned examples, you can be well on your way to becoming more appealing to your suppliers and put yourself in a position to negotiate deals that can capture savings over the long term.