Volume is always seen as the key factor in determining buying power, but there are other considerations.
Think outside of the obvious. Consider what else will affect your deal: Finances: Payment terms and reputation. Brand: How attractive is your companies name? Operations: Are your requirements unattractive. Timings: Has the supplier just lost a contract? Integration: How costly will it be to make a change? Relationships: Is your company a team player that others like to work with?
By tom lauren . Published: 2016/08/26 11:48:57 AM, Last Updated: 2019/06/21 8:25:06 PM Answer URL
Think outside of normal considerations:-
- Finances – What are the payment terms and reputation?
- Brand – All suppliers have a client sheet for marketing – how attractive is your company’s 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 – 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!