GPI 283 – Can your purchasing people tell you what techniques they use to negotiate? If not, they probably are not.

Can your purchasing people tell you the techniques they use every day to save the company money on their acquisition of goods and services? Can your buyers write down their techniques in a clear and concise manner? If they cannot, they most likely do not have any they are using.

Your buyers may just be placing orders and nothing else. They are just buying what everyone is yelling for. If they do use techniques but cannot describe them, they are most likely not consistent. Most buyers have techniques that they have practiced from watching others, but how many are trained to add more ideas? How many buyers possess and refer to a list of ideas, methods and techniques which helps them consider all of their options before they begin negotiations and spending your money?

Assemble your buyers’ techniques into one document. Regardless of the answer, ask all of your buyers to assemble their best techniques into one departmental document. Would it not be beneficial to the company if all of your buyers were trained and well-versed in a comprehensive list of well-described and proven negotiation techniques? Here are a few to contemplate and to use to start your own list because all industries are different and offer different opportunities for cost savings. Update the list when a new technique is recognized and encourage everyone to participate. Keep the list updated and add to it constantly. Add new techniques to the list as they are discovered or used. When some new twist on negotiation is realized, get it added to the list and consider giving spot bonuses (i.e. $50 or $100) every time a truly genuinely great idea emerges. Consider the potential cost savings and this small incentive long after it has been paid and spent will be remembered immaterial in comparison.

Negotiation techniques used in purchasing (just a few):

Technique #1 Low Volume/High Volume: Call a potential vendor, ask for a quote (request for quote, RFQ), give a low volume (100 per month), and negotiate the best price including or excluding delivery and packaging methods. Once you have been told this is the best price adamantly by the vendor, ask for a price for higher volume, (i.e. 1000 per month).
Technique #2 Pricing With/ Without Freight: Negotiate the best price from a vendor delivered (freight included), then ask for the price if the product is picked up by your own truck.
Technique #3 Pricing With / Without Material: Negotiate a manufacturing price from a vendor all inclusive (material, delivery, etc.), then ask what the price could be if you purchase the material or perform an outside service. Your firm may buy large volumes of this material already so your current pricing may be lower than that of your new vendor, thus the request for two pricing levels.
Technique #4 Freebies with longer commitment: Negotiate landscaping maintenance per month with a minimum number of visits per month, then request flowers and flower bed maintenance be thrown in once per quarter or semi-annually if you sign a quarterly or annual maintenance contract. (i.e. Free items for a longer-term commitment).
Technique #5 Better price on quicker payment: Negotiate best pricing for low volume, then high volume, then declare you pay vendors in 60 days unless you can get a better price then you can swing 30 day terms.
Technique #6 Know your vendor’s competitors – Take bids constantly: After six months of working with a vendor and paying them promptly, make sure to understand the market, the names of their competitors, and get competitive quotes. You do not have to change vendors if the service is phenomenal, but you must act if the pricing difference is a material amount. In this case, bring your vendor into the office, mention you must keep the bidding competitive, but you need them to look at their pricing relative to ABC Company’s lower bid on the same work. Never show a competitor’s bid; this is very unethical, but mention the vendor name to let your vendor know you know the market.
Technique #7: You do not know everything – Ask your vendor how to save money: Ask your vendor how he suggests you cut your costs? Maybe your specifications are too tight or restrictive, eliminating far cheaper alternative suppliers? Maybe your order quantities are too small causing setup costs to escalate your piece price? You may not know the best order quantity for the best price. Ask them to review this and make sure to tell them they are getting the first chance at this cost reduction opportunity because you value their input.

There are as many techniques as there are industries. Have all of your buyers assemble their best techniques and write them down to share with all of the buyers. They will all benefit. If you have to, bring in an outside consulting firm to do some professional training or replace the manager with a person with much more experience that can train the subordinates.