Q & A Table of Contents
I’m Caught Between A Demanding Boss And An Inflexible Supplier
From: Peggy, Hong Kong
Question: I will have a corporate price negotiation meeting in two weeks. This is my 1st time being responsible for such a big negotiation.
Basically, our target is get price down by 5% on the commodity for which I am responsible.
I can not determine alternative options if supplier will not agree to lower the price.
Our company objective is to reduce our costs by not allowing suppliers “price up". So, what are the areas I should investigate. What should I do, what is the strategic, or tactic best fit for this project....
Please help... I am so nervous and can't sleep almost whole week...
Response: Take a deep breath and think about who the stakeholders are in the negotiation: the individuals who will do the face-to-face negotiation, their constituents (bosses, colleagues, customers, etc.), and OIPs (other interested parties: your competition, your supplier’s competition, regulatory agencies, etc.).
While your boss had indicated that you ‘must’ reduce the amount you pay for the commodity by 5%, it is important to find out whether that price reduction is dictated by a desire to increase corporate profits, offset price increases in other parts of the production process (labor, other commodities, rent, etc.), or simply your boss’s desire to look good to his/her superior.
Find out from your boss what you might be able to offer the supplier as incentives to reduce their price:
Perhaps your company will pay in 5 days instead of 30 days.
Perhaps your company can sign a long-term contract with price guarantees included. It may well be that once you and the supplier agree on the price, you can index it to inflation — with the price changing whenever a mutually-accepted measure of inflation changes.
Determine what goes into the total cost and see whether you can negotiate about such things as speed of delivery, which company pays transportation costs, who pays for storage of the commodity, or quantity discounts.
The next thing to do is look closely at the choices your company can make in terms of this particular commodity: is it available from many suppliers who might compete for your business and thus possibly offer you better prices? Do you need ‘your’ commodity in your production process or are there substitutes that might be used that will not reduce quality but might be less expensive? Do you face any kind of time deadline regarding resolution of this deal?
Learn whatever you can about your supplier’s situation. Is their commodity one where the price is stable, or does the cost of the commodity vary frequently? Is the commodity produced in many places or are they compelled to buy from a single source? Does your current supplier need you more than you need them? Do they have an oversupply of the commodity or is it difficult to acquire? Understanding the situation your supplier faces, the competitive market for the commodity, and what kind of pressure they are under can help you take the appropriate steps to meet your objectives.
Before you let your nervousness cause you to lose further sleep, try to imagine the worst possible consequences if you are not successful at getting the price reduced: can you lose your job? Will your climb up the corporate ladder be seriously slowed? Is your boss asking you to do something at which s/he has not succeeded in previous attempts?
Ask your boss to help you understand the strong points and weak points of your company’s objectives. Make your boss your coach. If you are new to this sort of negotiation your boss has an obligation to provide you maximum guidance. You need to tell your boss, “I am representing you. Your reputation is on the line because when the supplier sees me across the negotiation table, they will also see you. How would you recommend I conduct myself so that you don’t lose face?”
If you have time to take a look at my book, Negotiating Skills for Managers (McGraw-Hill, 2002) you will find that chapters 4 & 5 outline a preparation methodology that might be helpful.
Good luck — and let me know what happens,
Steve
| 
