I received an article the other day that talked about negotiating and how the prices of raw materials affect your overall costs as a company. Basically the author summarized a quick story about how he negotiated with his sales rep to get a lower price based on market information he had collected about the material he was using, in this case steel cans. Steel prices had fallen in the market so he approached the rep about lowering his costs. The rep ended lowering his costs but not as much as the author requested due to a difference in the type of materials in the market. What the article goes on to explain is that the author might never have gotten the costs lowered had he not asked. Of course following the market didn’t hurt him either.

What I found to be interesting was his explanation of why he benefited from the situation. Understanding the supplier’s costs can be difficult and determining their true costs, nearly impossible. This is very true with most suppliers, and the deeper they are in the supply chain the more complex the pricing can become. “In fact, actual prices are often deliberately obscured by volume rebates, secret discounts, scrap allowances, etc, many of which don't even show up on invoices”. So instead of focusing on that bottom line and actual costs of raw materials, the article suggests being aware of what direction the industry is headed in. Are you selling clothes in a retail environment? You should consider researching textile material costs. What about installing alarm systems? Follow the prices of copper in the market. Sometimes it’s not all about raw materials, it may just be about knowing what your leverage is and how to use it in negotiations. Besides, what’s the worst that can happen if you ask for a lower price? They say no. (And then you ask again!)
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Jennifer Ulrich

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  1. I like the last comment "..ask again" you never know -simply rewording the question could be benefical!