It’s a seller’s market, which means traditional negotiation tactics don’t hold up any longer. Inflation is pushing prices up and sellers are passing this on. Banging a fist on the table and demanding a cost reduction will get you nowhere. More likely, the seller will walk, find another buyer and you’ll never hear from them again.
In this environment where goods are thin on the ground and buyers are clamouring for what little there is, you need to become the preferred customer. If a supplier can get their hands on only a small quantity of a product you’re in the market for, you need to make sure it goes to you. If sellers are approaching you with increased prices, you need to make sure it’s because they have no choice.
Becoming the preferred customer is all about influence. You need to adopt a holistic approach to your suppliers and stakeholders. The focus is no longer on individual contract negotiations; it has to be about the broader relationship. Put yourself front and centre in the supplier’s mind, and prepare internal stakeholders so they are more accepting if prices must go up.
Here are four things you can do to become the preferred customer.
Understand the supplier’s position
A little understanding goes a long way. When a supplier insists on a price rise, it’s best not to react defensively or with suspicion. Inflation is pushing prices up and, in many cases, sellers are passing this rise on. If the price increase seems reasonable (i.e. unavoidable in current market conditions) and the supplier has provided reasonable facts to back up the rise, consider working with the seller on other ways of minimising the impact on the category.
For example, a recent McKinsey article suggested asking the vendor to help fund promotions in an effort to offset (somewhat) price increases for customers. This also has the added benefit of developing a more strategic and innovative relationship with the client.
It may be a seller’s market, but that doesn’t mean all suppliers are operating at an advantage. Procurement departments nationwide are waking up to the fact that supply chain diversity can not only be socially beneficial, but also commercially sound.
Working with minority-owned small suppliers, however, comes with responsibility. It’s not unusual for one company to make up 80% of an SME’s business. If they have to increase their prices due to inflation and the buyer decides to walk away, that SME will go under.
Bring internal stakeholders on board
The price increase may be fair, but internal stakeholders might not see it that way. Getting them on board requires deft communication and well-honed soft skills. And it starts at the beginning.
Getting face time with CFOs and high level executives is rare. When it comes, it’s usually brief – sometimes, a matter of minutes. A 30 deck PowerPoint presentation won’t get the job done. You need effective and efficient communication, delivered without prompts and with eye contact. Get the stakeholders to see what you see: the value of the supplier, the value of developing a long-term relationship, and why accepting a price rise now is more attractive than walking away and trying to find a better deal elsewhere.
Retain the right talent
Procurement is currently focused on digitisation – to the detriment of vital soft skills. The ability to influence and woo suppliers and stakeholders is rare. When you find it, you need to keep hold of it and nurture it.
Procurement departments are known to be revolving doors, which means organisations need to work especially hard to retain good procurement officers. In the current climate, that might mean letting them work from home for longer (or, on the flipside, offering this same incentive to employees of another company that has forced its staff to return to the office).
The first step is determining the capability of your team; find the gaps in the soft skills so you can close them. Skills Gap Analysis has a range of procurement evaluations designed to uncover the strengths and weaknesses of your employees so you know who has the potential to be your best influencer.
Become an Influencer
Traditional negotiation is dead. The focus is now on broader supplier and stakeholder relationship management. Soft skills are more important than ever, as these really do give you the edge when positioning yourself as the preferred customer. Academy of Procurement has been educating procurement officers on sound negotiation and relationship management for years, with great success.
Transform your workers into influencers and be your suppliers’ preferred buyer.