How to Negotiate with Suppliers

This is the fifth installment in our series on how purchasing staffs at various companies implement strategic sourcing. You can find the other installments in the Strategic Sourcing channel at our website, www.purchasing.com .

This series is more of a conversation than a tutorial, and we invite you to join in on the conversation. Send your comments to

Know the market

Familiarity with the market is key to successful negotiations with suppliers, says Paul Thornton, sourcing manager for indirect products and services at Boston Scientific in Natick, Mass.

Sourcing managers at the medical device manufacturer learn about the market for the goods and services they purchase through data gathered from suppliers during the RFP (request for proposal) process. For certain buys, especially those that are relatively new to the sourcing managers such as energy, they may also consult an analytics group within Boston Scientific that produces market intelligence.

With the data, sourcing managers develop strategy that helps reduce cost and minimize risk associated with the goods and service they purchase. "We examine all cost factors," Thornton says. "We don't leave anything to chance."

Having done their homework, sourcing managers are in a good position to know whether they will be negotiating cost savings with suppliers or that there may be potential cost increases. "We would try to negotiate those away or be creative and mitigate to the best of our ability," he says.

At Boston Scientific, negotiations with suppliers typically are conducted by individual sourcing managers, although the company also sometimes uses teams for the sessions. On these occasions, members on the team are assigned a role prior to entering into the negotiation. For instance, one team member may be more skilled at working out cost details while another may be better at developing relationships.

—Susan Avery

Be collaborative

Ideally, Jan Pinger, vice president of global procurement at Teleflex Automotive in Troy, Mich. says, all negotiations should have a collaborative tone. Why? Because in the end, the real goal of a negotiation is to get the supplier's representative to go back to his or her company and "sell" your company's position internally.

But not all suppliers are ready or worthy of that kind of collaborative negotiation and determining the supplier's level of "collaborative maturity" is the only way to effectively select and execute a negotiation strategy. Deciding where on that curve a given supplier sits requires a fair amount of pre-negotiation thought focused on how long the buyer and supplier have worked together and what the nature of their work has been.

"Going through a few battles with a supplier lets you test the give and take they will provide," Pinger says.

"We usually strive for face-to-face negotiations whenever possible," she adds.

Buyers should also think about the physical location for an in-person negotiation based on their goals for the meeting. While there are no hard and fast rules, negotiating in the buyer's office often sends a "you're on my turf" signal, while having the meeting in a neutral setting like a hotel or conference center tends to send a more collaborative message. Both have their place, but selecting the right location can help set the tone.

Negotiating with suppliers in other countries or regions requires its own set of preparations, as well. Buyers should make an effort to understand the culture of the country in which your supplier is located. "Quite often, we Westerners tend to take a Westernized approach to negotiating with suppliers," Pinger says. "We assume that if we do X, they'll do Y, but they don't necessarily think the same way we do."

And, a negotiation process should not be considered complete unless agreements made at the meeting (no matter how informal) are put down on paper and shared with the supplier's representative to ensure that there are no misunderstandings.

"We have a rule that those documents must be prepared and provided to the supplier within 48 hours," Pinger says. "This prevents misunderstandings."

—David Hannon

Go for a win/win

When you're the materials purchaser and supplier negotiator for a small company, "you're often solely responsible for all aspects of the negotiations," says Eric D. ("EJ") Johnson, purchasing and materials control coordinator at Titan Air in Osseo, Wis., a manufacturer of industrial and commercial heating, cooling and ventilation equipment. "You may be able to divert to a higher authority in management, but it's usually your deal to win or lose." And that's why his negotiations always center on the implementation of win-win strategies.

"Negotiations go best if everyone feels they have done a good job or has made a good deal," he says. "Don't beat anybody bloody and leave them for dead; you may want to wrestle with them again later."

He believes that buyers "always should get something in return when a concession is made."

"Be specific, do not use double talk or beat about the bush," says Johnson, "Avoid clichés and slang; be clear about the issues, price, dates, times and performance. Don't assume you've made a good deal," he says.

The ideal negotiation is one that helps build solid relationships, he says, since Titan Air doesn't require all agreements to be in writing, depending on the complexity of the deal. "If proper research has been done and a trustworthy vendor has been selected and all parties feel confident that a good deal has been struck," he says, "then we will move forward with a firm handshake and a promise to honor our side of the bargain."

—Tom Stundza

Keep things fair

Good vendor management skills are central to good rapport and successful negotiation, says Bill Hardin, Sacramento-based senior procurement specialist of finance-business services for the Judicial Council of the state of California. After around 20 years as a procurement specialist both for corporations and government bodies, he's had to keep his negotiation style flexible to fit a wide range of business climates. Right now he organizes procurement for all 58 counties in California, from courts in tiny farm towns to huge cities like Los Angeles.

Preparation and clear predetermined goals are crucial when it's time to strike a deal, but he is well aware that he has to find a balance. While getting the best deal for the Council, he makes sure he's keeping his supplier viable by striking a fair agreement. "You don't talk down to your vendors," says Hardin. "They have to make a living too, so you want a viable vendor —you can't take their last penny." He doesn't want to stifle communications.

—Maria Varmazis

Aggregate spend

"You want to aggregate your complete spend," says Kristie Syndikus, commodity management director for semiconductors for electronics manufacturing services provider Celestica in Toronto. "Take a look at all the suppliers you are engaging with and the different needs of all your business units in different geographies," she says. Before a negotiation, her team aggregates its spend by commodity and by individual supplier.

Syndikus says Celestica negotiates for total cost of ownership of a product rather than just price.

Celestica may also bring up that a supplier can win more of Celestica's business if it supports one of its megasite campuses.

Such campuses offer OEMs cradle-to-grave services.

—James Carbone