Vendor Management: Tips for More Efficient and Productive Negotiations

Business men talkingYou wouldn’t want to be a buyer that beats up your vendors on price. In some cases, however, your requests for reduced costs could be warranted because your business also needs to meet your growth and financial goals to produce sufficient profit after all. To achieve these goals, you must implement efficient vendor management processes and among them, productive negotiations to obtain the best possible prices on your purchased products and services. Below are foolproof ways to ensure that your negotiations are mutually beneficial for all parties involved.

Perform Regular Spending Evaluations

You don’t necessarily have to carry out regular assessments on all your vendors. Instead, focus on the new ones and those that you’ve had issues with in the past. Primarily, determine exactly what you are getting from your vendors, how much you are paying them, etc. This would give you a deeper understanding of your expenses over time and the potential negotiation points you could leverage.

Negotiate your Vendor Contract Yearly

If at all possible, avoid signing contracts that exceed one year. This way, you get annual biddings and at a minimum, contract renewal negotiations with your current vendors. In the majority of cases, these negotiations would lead to reduced costs of items, and conversely, multiyear contracts would typically favor vendors.

Consider Aggregating Volume Purchases Across your Organization

Assuming that you perform regular spending evaluations, you could now gauge your expenses effectively. Using this crucial information, you could aggregate volume purchases across the various entities and divisions in your organization. For instance, if a division in another state spends $150,000 yearly on a particular item and another division in another state is buying similar items at the same price from another supplier, you could get volume discounts when you aggregate that $300,000 in your yearly spend with just one supplier. This would also give you more negotiating power.

Don’t Discount Other Vendors

Even if your organization has been purchasing the same item from the same supplier for the past five years or so, this doesn’t necessarily mean that you shouldn’t consider other suppliers. Perhaps other items are manufactured today at a reduced cost. Just keep in mind quality over quantity and your relationship with the particular supplier that might get affected if you do switch suppliers. Put simply, weigh all the pros and cons, and don’t just focus on price alone.

While your supply chain managers and procurement officers probably have a broad range of auction and e-sourcing tools, as well as vendor management tools like a return to vendor app such as Reverse Logi, among many others, they still utilize traditional negotiation tactics to help adjust, manage, and create new business relationships. By implementing the above-mentioned strategies, you ensure amicable and mutually beneficial relationships with your vendors and keep your spending to a minimum.

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