How do you find out if suppliers have margin to share in the 1st place?
I was reading the Sourcing Innovation post today titled “Procurement Game Plan: A Review Part II.3”. Part of the discussion was about negotiation preparation where the question asked was; So how does a skilled negotiator prepare? There were six responses, the 1st of which is as follows.
Try to find the win-win:
If the only way for the buyer to get better terms is for the seller to sacrifice margin, it’s going to be a tough fight. But if the buyer can offer something to the seller that can look like a win in the rep’s pocket — such as more volume than expected, better production batch sizes, co-marketing — which may not cost the buyer much, the pie can be expanded and both sides can win. While the negotiation will still be tough, it is much easier to get a bigger slice of a bigger pie than to try and take the few scarps the sales person has left on margin.
Although much of what is listed above is accurate, the first question in preparation is or should be; does the supplier have any margin to share with me? Answering this question is pretty simple if you are negotiating with publicly traded companies because you can look up their results, press releases and other information on line. You also already know how long you have been doing business with your incumbents, which is worth something.
Let’s assume you have been doing business with an incumbent supplier for more than two years. This is plenty of time for them to use the same tools you plan to use in order to reduce their costs and improve their margins. If so, the question is have they shared those savings with their best repeat customers (you). The answer, probably not. Unfortunately for publicly traded companies, Wall Street holds them accountable to continual growth in terms of total revenue, margin and earnings. If they release numbers that are off in any one of these areas, their stock takes a hit.
As an example of the above, last year, major waste management companies unnamed here released significant growth and earnings numbers. Did your waste management costs go down? How much is a fair amount for a company to earn without sharing it with their customers. Several of these points are why more companies today would rather be private than public.
Let’s sum up. You have an existing contract in place with your incumbent for more than two years; your costs have not gone down, you incumbent supplier has just announced significant revenue and earnings increases as have their competitors who also want your business. Do you need to give anything else away? Probably not! Can you expect savings on your new contract as a result of having this information? Absolutely! Why will you get the savings? Because you were prepared and asked for it! And most importantly because most of your competitors don’t prepare properly and as such did not ask for it.
Now in order to maximize your savings, make sure you use the most advanced e-procurement tools like reverse auctions to get the savings you deserve.
We look forward to and appreciate your comments.