How to negotiate the prices with the suppliers while their product has already been approved by the end user?

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You will negotiate with the supplier whose product has already been approved by the end user in the same way the way you should professionally deal with the supplier whose product has not been approved as yet by the end user. Because THE SUPPLIER APPROVED BY THE END USER DOES NOT KNOW THAT HIS PRODUCT IS ALREADY APPROVED. Therefore you can still use all negotiating tactics and strategies with that approved supplier trearting him as if he is still not approved.

Thank you for your invitation. When supplier already approved by end user, does not mean that supplier should know it. You can still negotiate the prices and try to show the benefits of being the supplier of your company.

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Consider the following strategies when you negotiate with a pre approved Supplier/Vendor :

1. Pursue Savings Through Cost-Per-Use

Saving money doesn’t always mean securing a lower price. Sure, getting a better price on parts and materials is an extremely important aspect of lowering inventory costs. However, cost-per-use is also an important factor.

 

Purchasing something that is more expensive, but that lasts longer, is another way to save money. Better quality, fewer defects and less incidence of failure, adds to savings as well. Therefore, go ahead and negotiate that lower price but be cognizant of the benefits of cost-per-use reductions. If your vendor touts the benefits of cost-per-use with their products, ask for documentation or proof. If not available, then make sure to test those claims yourself.  

2. Payment Terms

Negotiating payment terms can pay huge dividends. Whether it’s getting an extension on terms, or pursuing discounts for prompt payment, both are excellent ways to reduce costs. When negotiating prompt payment discounts, most vendors will grant net-10 day terms with a 1% - 2% discount on invoices.

 

Negotiating either an extension to your terms, or a discount for prompt payment, will help improve cash flow. When negotiating payment terms, leave it for the last part of the negotiation – concentrate on securing other concessions first, and then close with payment terms.  

3. Separate Freight from Price

Freight is an extremely important aspect of a company’s inventory cost of ownership. The cost of freight to get parts in and out of your warehouse should always be included in your inventory cost assessment. Even if your company has a delivered price for parts from your vendor, you can be assured there is a mark-up on that freight cost. It’s a service they are offering you as a customer. As such, your vendor is probably adding something extra to that freight cost.

 

When negotiating with vendors try and separate freight from their delivered price. You may have the ability to secure a better freight rate. At the very least, you must know what that cost of freight is to get those parts into your warehouse. 

 4. Use Volumes and Vendor Consolidation

Vendor consolidation is an approach that produces both hard and soft costs. Those hard costs come from increasing your company’s volumes and purchasing power to secure lower pricing and lower freight on parts. Shipping more parts and materials from fewer locations will reduce your cost structure and produce soft costs in fewer bill payments, fewer vendors to manage and more free time.

 

When confronted with a vendor that can reduce both price and freight on parts, be sure to pursue volume consolidation with them. Matching volume for pricing is one of the easiest ways to reduce a company’s inventory costs.

5. Pursue Contractual Supply Agreements

As mentioned, vendor negotiation includes far more than simply demanding better pricing. The last item on our list includes lowering costs by pursuing contractual supply agreements with vendors. Your company’s inventory cost of ownership includes retaining parts and materials that remain in your inventory for extended periods. These parts can become damaged beyond use; becoming a total loss. In addition, there are monthly holding costs, (typically around 3% of the inventory value on hand) that come with holding inventory.

 

The longer inventory is held, the more expensive it becomes. When your vendors hold parts for your company, you immediately reduce the incidence of damage to inventory and reduce those holding costs. However, don’t expect your vendor to hold those parts forever. After all, they have holding costs as well.

Half the supplier issues are solved if the end user has approved them as the source supplier. As to prices, try transparency of process. Let the supplier know the volumes and frequency and ask if they can work out a better rate given this additional data.

Be wary though, customers will always inflate consumption data in order to acheive a better rate so ask the end user for reports that prove the data accurate.

The supplier should be able to either work a production schedule that will generate cost savings and pass them on, or purchase from the third party at volumes to generate discounts and pass them on to you...

 

Thanks...

First, do some market research with the same (or almost the same product). In this way, you have the knowledge on the average price, lead time, availability in the market. It is easy to negotiate and persuade the suppliers if you have an idea about the product value.

Second, try to convince them that you need a good price and you are thinking of long term relationship.

Last, dont mention to the supplier that their product is the approved one. Negotiate to them as if their product is not the only choice.

Thank you for inviting me to answer this question.

The supplier will not give final price close to the profit margin of thier product. Get the target price from the end user and negotiate again to the supplier. 

 

After getting the approval from the end user (if I may call it) to start a new negotiation with the supplier you can call the supplier and negotiate with him again.

 

After approval is very risky without the proper approval, in procurement it might be explained something else.

Oh, procurement bypass, my favorite! ;)

If end supplier knows he has been chosen (and if end user has approved the product / supplier, usually they have already communicated that to the supplier off the record), the only way to do it is to make your scariest facial expression, look them straight in the eye and say your counteroffer, with a post scriptum that you WILL go to the next supplier and the next and the next until one of them says yes to your price. Alternatively you can say you WILL kill the tender and do it all over again and he WILL NOT be invited ;)

He has to believe you are crazy ass woman who WILL go thru with her promises (i.e. you have to be a great bad cop)

On a personal note, I find your questions interesting, iintelligent well thought out and fun to answer! (as opposed to vast majority of questions on bayt). I would hire you just based on the questions you ask! ;)

 

Use the fact that he is blind and he does not know this.  You have to bluff the supplier to show him that you do not care and then he will run after you.

 

If you want something strongly.. leave it and it will come to you.