Volume is always seen as the key factor in determining buying power in any negotiation but there are other considerations.
We have seen many negotiations over the years from small to multi-million pound deals. Many are straight forward; volume is the key leverage, prices are fairly static and room to negotiate limited.
But increasingly we have seen other factors come into play where it becomes a little more complicated.
Think outside of volume and consider what else will affect the deal;
- Finances – payment terms, reputation etc
- Brand – all suppliers have a client sheet for marketing – how attractive is your companies name?
- Operations – are your requirements inflexible and require a lot of effort to serve
- Timings – has the supplier just lost a contract?
- Integration – if an existing supplier how engrained in your processes are they and how costly will it be to remove and replace them
- Relationships – people buy people, is your company a team player that others like to work with?
One of our consultants was negotiating a deal in the region of £10 million per annum. This was a lower than average amount for the supplier in terms of individual deals and the supplier held a lot of cards in terms of negotiating power;
- They were an approved global supplier
- They were market leaders
- They were integrated into existing processes and literature so the cost to change then was not insignificant
On the other hand, timing was on our consultants side;
- The supplier had just lost 2 contracts and were very keen to not lose a third
- The supplier was unaware of the cost to change literature
- Our consultant was happy, subject to agreeing the deal, to proudly promote the renewed contract in the media
The net result was a very favourable deal, better than the volume would have indicated.
Another of our consultants had a very small spend and was dealing with a very large supplier. However, the supplier was trying to move into a different area and needed a blue-chip client to lend some credibility to this, which our consultant was more than aware of.
Net result was a contracted rate way lower than average and service way higher with first mover benefits.
On another occasion the same consultant had a big spend – single biggest in the market – and went to the negotiating table with understandable confidence. However, there were a few issues which soon dented this;
- His company had a poor reputation
- They were also known as slow payers
- There was little flexibility in terms of requirements meaning it was costly to service any arrangements
Net result was a deal at a rate far higher than volume on paper would have indicated.
What we have learned is that the other factors do play a big part and identifying these as soon as possible means 2 things;
- You better placed in negotiations
- If the cards are stacked against you, better to pre-warn your lords and masters BEFORE you start!
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By tom lauren . Published: 2016/08/26 12:48:57 PM, Last Updated: 2016/08/26 1:17:25 PM