Vendor Negotiations - 5 Eye Opening Lessons

In my 30+ years of experience in supply chain…ok that’s a lie, that’s not even close. I haven’t been in Supply Chain for that long, but I’ve learned A LOT in my time in it. I found success and plenty of learning opportunities in running a distribution center by myself for a while. I look back and try to figure out why I found success, and more importantly, what are some of the most important things I’ve learned - whether through trial and error or through some amazing mentors and colleagues. 

I realized some of the people that were reaching out and supporting me after a company-wide restructuring led to some unfortunate layoffs, were vendors. People I had developed relationships with throughout my time. I was thankful for the support, and it made me reassess how I interact with people on a daily basis. 

I deal with vendors and partners a great deal. From electricians, plumbers, technicians, architects, engineers, supply chain brokers, shippers, repackagers, manufacturers, 3PLs…the list goes on. There was some sort of negotiation happening in every one of those interactions, so naturally I picked up a few things along the way. In all of these interactions, it is important to note that a) it takes two to tango, and b)he  “There can only be one winner” mentality is the worst mindset to have during vendor negotiations. 

So here are 5 simple but powerful  lessons I learned along the way that can hopefully help you as well: 

1. When one tries to haggle, both sides lose

Yep, both sides. Now, to be clear, I'm not suggesting you should go into vendor conversations and accept any price they give you (unless it’s strategic). Always go into a vendor conversation informed, having done your research, so you know generally what to expect. That being said, here is the scenario as it happens when I find myself in a haggling battle. 

I tell my vendor my vision, and they give me a quote

Haggle

I want to get a better deal

Haggle more

The vendor lets me know that I would sacrifice quality, and an argument ensues 

Haggle aggressively (use my business and future business as leverage)

I need it cheaper

The vendor comes back and says they’ll do it cheaper, but this time they don’t say that we’d sacrifice quality, but they just give me a “better option” for a cheaper price. They assure me that I didn’t sacrifice quality and I got a cheaper price. (Note, the vendor didn’t lie, they are just trying to match what is important to me, which at this point, I’ve made clear is ONLY price) 

I use the line “This isn’t as good of a price as I hoped, but I guess it’s fine” to make the vendor feel better about the deal…but secretly

YAY, I won….

NOPE

My product arrives, it’s not even close to how I wanted it. 

I hate the product, now I blame the vendor, the vendor hates dealing with me

I lose quality, I lose my product, I lose the vendor that I spent hours or weeks sourcing

The vendor loses my business

Both of us lose

Remember…it takes two to tango. 

2. The quality of the outcome of the product usually matches the quality of the attitude on the calls/interactions

I enjoy speaking with pleasant individuals. My vendors do as well. The less pleasant I am, the quality of my product drops. 

Let’s say my vendor knows I’m not a pleasant person to interact with. While I’m speaking to them trying to describe my product and what I need, they are most likely rolling their eyes and thinking about how they hate these calls. In the meantime, they’ve heard nothing about my actual vision for my product. They write down the few words they did catch, repeat them back to me, and say they’ll get me a quote…ok BYE. I’ve seen this unfold before my eyes, and, no surprise, the product was NOTHING like the vision. 

Pleasant interactions (still a two-way street), incline both parties to truly listen to each other. Which brings me to my next point. 

3. The vendor's ideas, believe it or not, might be better than yours

The reason I’m bringing on a vendor is because they know more about something than I do, or I don’t have time to do it. In either scenario, they have probably done it more. 

Now that I’ve set-up a pleasant interaction with no haggling, I’ve created time in the conversation for us to open up the discussion further. This time should be allotted for me to describe my vision, and listen to their feedback and questions. 

This might have come more easily to me as I didn’t have too much experience when I started, but I’ve seen much more experienced supply chain managers and directors ignore a vendor’s idea only to waste tens of thousands of dollars on a failed product. 

Note: This is also the point in the conversation that I know whether or not I will continue to work with this vendor. 

Their feedback and questions give me an opportunity to understand if they are competent, if they are creative, and if they care about what I’m saying. It also lets me know whether or not they are transparent and honest. Vendors who don’t give a lot of feedback or ideas and don’t have questions usually don’t get a follow-up from me. 

4. The best results/fruits of the “negotiation” aren't always seen right away

Business size usually matters with vendors. E.g. If I’m a really small percentage of the vendor’s business, then I’ll be treated differently than if I’m a really big part of the vendor's business. This isn’t a bias, it’s ROI. Obviously, if I have a large business, the vendor is more willing to invest more time and effort with me in order to ensure they keep my business. 

Smart vendors are usually more willing to invest in a business they believe in even if it’s not a large part of their business. 

The same goes for me, if I am able to help a small vendor, and this vendor adjusts and grows with my business, I invest more time and business into this vendor so that there is mutual growth for both parties. In many cases, the benefit isn’t always seen right away, but the fruit of this investment is phenomenal. 

I was fortunate enough to source a vendor who had helped save one of our product launches that needed a last minute print. This vendor, who was small and local; by local, I mean deliveries were arriving to my warehouse in a Chrysler, and didn’t have so much as a postage stamp to ship his merchandise. Regardless of the delivery method, I recognized the quality, speed, and reliability of the work he and his team did. Although the prices were still high, I continued to send more and more requests his way because I knew the product would come out how I needed it and when I needed it. Due to the high volume of work that continues to pour in, he not only ships to me when I need more inventory, but is also able to expand the business across the country and ship nationally. Now that I’m with a smaller company, I’ve reconnected with this vendor and others who value growth and relationships.

Which allows me to segway  into my final point. 

5. Substitute the word “Relationship” every time you think of the word “Negotiation”. 

Those of us with a competitive nature get riled up when hearing the word “Negotiation” thinking we are going to try and win something. Others who avoid confrontation abhor the word thinking it will elicit conflict. Delete the word from your mind. It should no longer be Vendor Negotiations: 

It should always be Vendor Relationships. 

If you have a moment, look back at the previous 4 points made. You can pretty much ignore all of them if you adhere to this last point. Haggling and unpleasant interactions push people away, listening to each other and engaging in fruitful conversations will create trust and solid output. After consistent interactions you will realize a great business relationship has formed. 

There have been instances where I’ve purposely avoided talking about the price and accepted the first ask without hesitation. I was clear with my intentions, and I also pointed this out to the vendor letting them know that right now my priority is the service and the quality of the product. This vendor saw the trust I was willing to put in the service they provide, and appreciated my transparency. The vendor continued to do quality work for me without hesitation, prioritized my needs (even though I wasn’t a big client), and would end up “pre-negotiating” prices for me, cutting down the price on future jobs that were even lower than what I was willing to pay. The service continued to be the highest quality. 

Some colleagues hate dealing with our vendors, some vendors hate dealing with my colleagues (and even bosses), but I’ve found that I thoroughly enjoy my relationship with our vendor partners because without them I don’t think I would have learned and succeeded as quickly as I did.