After years as the chief financial officer (CFO) of a couple software companies and the owner of a custom fiberglass company, I know that the manufacturing business is different from every other. In most businesses, the customer holds the upper hand. “The customer is always right” is a cliché, but it is how many businesses operate.
However, with manufacturing and suppliers, the suppliers often hold the upper hand. Although manufacturers and suppliers are dependent on each other for success, the relationship can sometimes feel contentious, especially if you’re a manufacturer. Strengthening your relationships with tech suppliers depends on mastering one of the most basic, but underused, negotiation tactics … collaboration.
Most people think of a negotiation as being a win/lose situation. If I get what I want, I win. You lose. Compromise is often seen as a dirty word. But, when it comes to suppliers, you will have much better luck negotiating a deal if you can learn to collaborate with your supplier.
There are two main ways to negotiate a better deal with your supplier:
- Bring Added Value to The Supplier
- Adjust Your Buying Patterns
By approaching the negotiation with a collaborative mind-set, you can discover which of these tactics will best work for you.
Bring Added Value
If you learn to collaborate with your supplier, you can turn your one-sided power struggle into a strategic partnership.
The most obvious way to bring added value to your supplier is to introduce them to new customers or new markets. When I was the VP of an audio software company, we used many of the same components as other types of software. By using my industry connections, I routinely introduced my suppliers to other customers. I rarely did this as part of an official negotiation with the supplier, instead, it was behind the scenes relationship building. Depending on your business, you might make introductions or negotiate for better prices by leveraging your experience with other markets.
For example, a medical equipment manufacturer who is going to install equipment in a new lab in South America might negotiate a deal with a supplier who wants to introduce their parts to that region.
Adjust Your Buying Patterns
Every industry has a busy time and a slow time. If you can adjust your manufacturing process to allow you to order from the supplier during their slow season, they might discount their prices.
If your timing can’t be adjusted, offering to prepay for an order might also earn you a discount, and move you to the front of the line during busy season.
Another way to adjust your buying patterns is to consider buying several components that you currently source from a variety of places from the same supplier. This makes you a larger, more valuable customer of the supplier, but has risks too. The more you purchase from one supplier, the more dependent on the supplier you are.
How to Collaborate:
To learn how you can collaborate with your supplier, you’ll need to do some research. Among the things you want to discover are the supplier’s pain points, their competition, their process, and their busy and slow periods.
In addition to basic internet research, you’ll want to review available supplier directories and reach out to your referral network for personal insights. You’ll also want to do internal research to reveal any duplicate ordering processes or places where you could adjust the timing of your ordering. If you are running a subsidiary of a larger company, it may be worthwhile to see how your “sibling” companies could collaborate to save on supplier costs.
Disruptive technology and changing needs have reduced the number of suppliers. This means that those who remain become critical to their customers’ success. But, it also means that suppliers are keenly aware that they could be the next company to become obsolete.
Working with your supplier to ensure that both parties needs are met can help both sides of the negotiation.
Dean Kaplan is president of The Kaplan Group, a commercial collection agency specializing in large claims and international transactions. He has 35 years of manufacturing, international business leadership and customer service experience. Today, he provides business planning, training and consultation to a variety of global companies.