Way back in the good ole days, Apple told us to “Think Different,” which became the motto for a generation of creative innovation. It inspired new thinking, pushing the boundaries of what we once thought possible in every industry. If you’re living the old school adage that procurement / supplier negotiation success is focused on price and only price, it’s time to re-think your approach and join the 21st century.
Hammering on price doesn’t work
You can’t do the same old things and expect to achieve different outcomes. Everyone expects a lower price, that’s just a given. If you think of yourself as a hammer and your supplier as a nail, what happens when you hit that nail at the wrong angle? It bends, making it useless. Innovation comes from seeing a supplier’s success as your own. This the 21st century approach, where you find savings in Supplier-Enabled Innovation (SEI) such as:
- improving logistics and delivery, often on a global scale;
- sharing information in more strategic ways through Electronic Data Interchange (EDI);
- improving efficiency through creative staffing, such as dedicated service personnel; and
- aligning internal stakeholders to remove time-consuming administrative obstacles.
Supplier Relationships Are Changing Fast: Are You Changing with Them?
- You’re wasting time and money by not consolidating
All major corporations are depending on fewer suppliers to help them succeed. One study* attributes an indirect spend cost reduction of 3.35% and a reduction of equipment and supplies cost of 9.18% thanks to supplier consolidation. As the number of your suppliers shrinks, the average negotiation is larger and more complex.
The result: consolidation saves time and money once you eliminate the hours you used to spend handling many products from many suppliers. When all parties have fewer choices, it is easier and faster to manage other time-consuming processes like non-standard purchases.
Do you have the skills to navigate these larger, more complex negotiations?
- You’re **only** focused on price
Purchasing is responsible for and measured on savings, but future success will be found in your supplier relationship. KPIs are expanding to include revenue growth, innovative approaches, customer satisfaction and risk management. A transparent relationship with your suppliers will help you predict and reduce potential supply chain disruptions. You must develop skills to ask questions and listen with open curiosity to earn the trust of your suppliers.
The result: a reciprocal partnership where suppliers look for creative solutions with your best interests in mind and everyone wins more.
Do you have the skills to build rapport and come up with creative solutions in your negotiations?
- You’re just an order-taker
Purchasing organizations cannot succeed if you’re just taking orders from internal customers. Instead, share your expertise for resource selection, understand the objectives and plans of internal operating groups, and work side-by-side with internal customers to solve business problems.
The result: sourcing professionals use effective negotiation skills inside of your organizations as well as with outside vendors.
Do you have the negotiation skills to get things done by people you have no direct authority over and gain the cooperation of your colleagues for important projects?
- Your team members are damaging your negotiation, literally undermining your efforts
As products become more complex and purchasing covers more geography, you’re responsible for coordinating more people on your team. Internal team members must have a negotiation strategy to avoid accidentally damaging your positions. And you must be skilled in how to work together to craft the best possible agreements.
The result: A wider population of your peers need to learn effective negotiation skills.
Do you have the skills to coordinate a larger team negotiation strategy?
The bottom line
You have to “Think Different” if you want to build mutually beneficial relationships with your suppliers. When you focus only on pricing, you miss opportunities in these more strategic areas and end up with less profitable long-term relationships. Your suppliers become the bent nail.
*“The Benefits of Supplier Consolidation Extend Far Beyond Sourcing Savings” by The Hackett Group, written by Pierre Mitchell and Christopher Sawchuck