When you walk into a normal restaurant or fast food chain typically they have on the wall somewhere in plain sight a certificate of their health codes, grades from regulators, and other notifications of the quality of good they produce. This is a form of signaling. They want the health conscious public to be aware of their menu ingredients and public display (most likely) good grade in they’ve achieved for their health and sanitation requirements. But,  what happens if there is no sign, no comment by the restaurant, and you are about to order?
          In this case there are two real scenarios: either the restaurant doesn’t show their certification or health grades because they have such a good reputation and quality of product they do not need to have it in plain sight or the establishment really isn’t that good and they don’t want you to know just how bad their grade or standards are. In a restaurant it is easy to tell, but in negotiating with suppliers distinguishing between the good and the bad may not be quite as clear.
          Some would say that there is always an incentive for the uncompromising, price gouging, and service lacking supplier to always fake being good. To some degree that is true, but it is very incomplete. A bad supplier will always fake being good so long as they are allowed to and their strategy is profitable. The goal of a sourcing firm is to create a cooperative and inclusive environment where relationships can be built and benefits for both suppliers and client may be achieved. This means creating a positive and cohesive environment. As it relates to cooperative and transparent suppliers, this is straight forward. There is no reason for a good supplier that accommodates clients, is reasonable on price, and provides quality customer service to act bad in negotiations. Sure everyone is out to make a profit, but to the extent at which this occurs and the behavior of suppliers can vary and in some cases even seem random. From the second you have the initial contact with the supplier, believe it or not you, are already setting the stage for negotiations, context for discussion, key talking points, and reputation you have with them. Some of the following strategies, depending on the commodity and client’s needs, may be viable in a negotiation to distinguish the good suppliers and create disincentive for the bad suppliers:
1. Time Limits and Information
If a realistic but strict time limit in negotiations is imposed such as in an RFP deadline then good suppliers will often meet and exceed expectations. In this situation, a good supplier has the market research, background information and intelligence, and competitive advantage to not ask for further extension or inquire regarding further information. We need to think from the perspective of a bad supplier that does not have the market information, has not have previously proactively engaged in the process, and is now trying to swoop in for profits. At the margin, more information is better even if everyone else is privy to the information. In an RFP process everyone will know the answers and questions that individual suppliers inquire about; however, the bad supplier will have a marginal benefit from gaining information, whereas the good supplier may know the answers to those questions already such as: projections for an index, expected volumes, or commodity spend breakdowns. From the question or inquiry, there can also be an assumption that there is a financial impact and potentially, depending on the question, a willingness to bid a marginally higher price depending on the response.
2. Potential Volumes and Price Discussion
If a supplier is offered potentially more volume in return for a marginal decrease in price for that particular product then there is a very simple margin calculation on the part of the supplier. This doesn’t seem like too much of a request; however, analysis of the nonlinear relationship between increases in volume and decreases in prices should be noted. The marginal benefit to suppliers from an increase in volume should be exponentially decreasing by some factor. Put simply, if volume doubles then prices will decrease by a substantially less amount that approaches the marginal cost of the product plus markup or margin.
3. Understanding the Market and Target Prices
Suppliers that understand market prices and are willing to accommodate the financial needs of a supplier  and will compete in negotiations and work to enhance the relationship a sourcing firm is trying to create. Unfortunately, suppliers that are unwilling to foster a positive environment and rely on potential inflexibility of a client may lose business and clearly demonstrate a lack of consideration for their relationship with the client. To better distinguish between a concerned supplier versus a bad supplier is often difficult; however, there are several key aspects to pay attention to. First, consistency and engagement in the process. A good supplier that genuinely cares about the relationship with the client will be engaged throughout the process and provide transparency even when met with further inquiry or clarification. A bad supplier may initially provide data or information but when asked to provide further explanation or information it is common that they will resist or not even respond to the inquiry. This emphasizes the need for a constant and positive line of communication between a sourcing firm and client. Put bluntly, if contact was maintained you may have realized long before negotiations that a supplier may be difficult or perhaps unaccommodating after the initial introductory conversation.
4. “Because” Statements and Reasons to Believe
Often, suppliers will explain their exceptional quality and service. For example,  they provide a unique product like none other in the market and their competition has it all wrong. While on introductory meetings or calls this may be acceptable, a clear aim of the sourcing process is to gather information on competitive advantages and unique opportunities able to be provided to the client. It is the burden of the sourcing firm to inquire regarding competitive advantages suppliers may have; furthermore, it is the burden of the supplier to provide unique reasons to believe in the advantages. It is all too common that suppliers rely on generic jargon filled responses without saying the “because” statement. For example, “Our customer service is the best because we offer 24/7 assistance lines and send a representative to the client every month to discuss areas of improvement.” In the above statement there are reasons to believe. Physical, tangible reasons in the customer service that is provided  If  asked for more information good suppliers will seize the opportunity to distinguish themselves and provide specific information to their firm. It is a great opportunity for sourcing firms to conduct follow up questions and gain real insight into a process by simply saying the phrase, “Could you please tell me more about. . . .” Some of these phrases are often overlooked and the answer suppliers give may on face value seem to answer the question, but when really pushed for the reasoning, may fall apart. Inquiry and attention to opportunities for the supplier are critical in determining of they will foster the positive and collaborative work environment sought after in a sourcing initiative.
The goal of sourcing firms is often times to act as a mediator and partner between the client and suppliers. Maybe there are potential opportunities the supplier has suggested that just need an opinion of another party to really push into motion. Likewise, it could be that reasons a client favors one supplier may have changed over time. The primary goals of a sourcing company include fostering a collaborative and positive relationship between clients and suppliers, give suppliers the best opportunity to shine and provide goods and services, and clients to reap the benefits from positive relationships with suppliers to ensure future growth. By creating an environment where positive and competitive suppliers achieve success and recognizing those that may not have the best interest of the client, then can the true potential of sourcing initiatives be reached.

Share To:

Braden Picardi

Post A Comment:

0 comments so far,add yours