If your company is not a large-scale international business then chances are high that your procurement team would be dealing with suppliers that are much larger than your company. In many cases, size translates to leverage, which is an essential element in supply chain negotiations. So how do you negotiate with a supplier who is the elephant in the room? What is your supplier relationship management strategy regarding supplier who is much bigger than your company?
What Makes Your Supplier Larger than Your Company?
Whatever industry you’re in, you’re likely to deal with suppliers that are larger than your company. What makes your supplier larger than your company? Apart from the default market size, geographic reach, cash flow, employee number, growth rates, there’re many other elements that make the supplier bigger than your company. For instance, the supplier is providing patent components or materials that you aren’t able to get elsewhere, they’re the sole source and there’s no alternative, the demand exceeds supply (i.e., the mask supply at the beginning of COVID-19) then your supplier has the upper hand to decide who they want to sell their products to at what prices.
Supplier Relationship Management: Dealing with a Bigger Supplier
When your Procurement team has the upper hand with suppliers the procurement job is somewhat easier. However, when you’re dealing with suppliers who have greater bargaining power then it is a real test of your ability to use your expertise and techniques to create win-win outcomes with these larger suppliers.
It’s important to recognize the power of the supplier and develop effective strategies to ensure successful negotiations. Without a well-developed strategy, they’re likely to trample over you with their perceived superiority. The following are some techniques we believe are effective to deal with suppliers who are larger than your company.
Build Strategic Relationship
Building a strong, strategic relationship with your key suppliers is certainly a must. A great relationship in the supply chain will get you through many problems, for instance, better pricing, and timely delivery. People like doing business with people they know. Inviting the suppliers for dinner or coffee can be a great chance to know more about each other and establish a bond that would pay off in the long run. This may also necessitate building relationships with other people in your supplier’s organization rather than the sales representatives you’re dealing with. If you’re finding the sales representatives unreasonable, then building relationships with others higher up the line may lead you to people who have a more positive vibe.
Be Prepared
Before going into negotiations with a bigger supplier, always do your homework and be prepared in every respect of the supply chain market. You should have an in-depth analysis of pricing, product characteristics, delivery terms, industry trends, your supplier’s situation, etc. You should learn as much as possible about your supplier, their internal organization, their competitors, their business pressures, etc. If you can understand the objectives of your supplier and create a way to help them achieve their objectives, they might help you in return.
Be Confident
If you’re showing signs of weakness or poor body language your supplier might sense that and further strengthens their position. Just because the supplier is larger than your company, it doesn’t mean they’re smarter. Your expertise and experience is what matters the most when dealing with the supplier. Be self-assured and be confident.
Focus on Facts and Objectivity
When dealing with an elephant supplier, it’s better to focus on data, performance, and objectivity. Avoid subjective blustering. Here’re a few questions to help gather the data and present it to the supplier. What is their delivery performance? What is their product quality? How are they doing relative to any competitors or benchmarks? Presenting data can help the supplier understand their situation better and disarm them from their perceived superior position.
Look for Backups
Any company that is on top today might be pushed off to the bottom another time. It’s just a matter of time. Therefore, it’s vital to keep looking for backups. Even if your supplier is the only source with time passing by there would be other companies developing similar products that can be used as substitutes.
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