4 Tips for More Effective Supplier Contract Negotiations
Updated: January 6, 2023 - 6 MIN. READ
How can your business reduce costs associated with building maintenance?
One of the most important factors in skillful contract negotiation is obtaining the largest discounts possible. If you’re a p owner, this not only reduces your expenses; it also increases your property’s market value. If you’re a property or facilities manager, these savings will not only make the building owner happy but some of these cost savings might be passed along to tenants or residents.
A win-win, right?
Unfortunately, it’s not always that simple. Negotiations are often neglected because time and resources are scarce. It requires a dedicated team to enter negotiations with suppliers and the best prices for essential supplies related to building maintenance, repair, and operations. Without the resources, you are likely missing out on large discounts on the items you purchase most frequently.
As a result, we at Raiven have seen companies paying 8% to 32% more than they should for parts and materials necessary for their building’s ongoing maintenance. So, how can your company maximize the effectiveness of your negotiations? Here are four factors we think are vitally important to consider.
If you run a small to mid-sized company, it’s a sad business reality that you simply don’t have a lot of leverage when it comes to negotiating contracted discounts. However, if you become part of a group purchasing organization (GPO), you can leverage the power of aggregated spend and pay significantly less for parts and materials. Even large companies are often surprised by just how much their discounts increase once they become part of the right GPO.
Aggregated spending requires you to combine all transactions related to your organization’s MRO spend. Once combined, you can streamline the system to include a select number of dependable vendors for your needs. In most situations, an overhaul of a department’s purchasing and procurement processes helps achieve the desired result.
Many businesses have significantly more suppliers than required, never allowing them to maximize productivity. Without an optimized supplier network, there is a bigger risk of logistical errors and costly delays. A business will experience increased efficiency and deeper discounts by purchasing from a narrower array of vendors.
There are numerous ways to aggregate your purchasing, with the following being the most effective:
- Centralize Procurement Data: A core procedure of aggregate spending is centralizing data throughout the organization. The ideal method is utilizing a platform that accurately tracks purchasing habits across all your buyers.
- Streamline Department Approvals: You can also optimize department decision-making processes by centralizing data, creating a streamlined approval chain for all your MRO purchases. This will help Improve transparency throughout the organization and improve efficiency.
- Develop Risk-Management Procedures: When putting your trust in a limited number of suppliers, you must include risk-management rules. Set procedures for delays and supply chain disruptions works to reduce the third-party risk for your business and avoid extraneous costs.
- Manage Vendor Performance: Tracking performance is critical in ensuring you get the best results from your suppliers. This can include tracking contract compliance, pricing, and availability data from your suppliers.
- Clear Reporting Practices: Clear reporting procedures will document any shortfalls in the plan and help develop more informed negotiation decisions. The results of your aggregate spending should be documented regularly.
One of the best ways to implement these aggregate spending methods in your business is with a procurement platform. Technology helps optimize a business without requiring a large in-house department. You can more easily track valuable data related to your MRO spend by combining all these aggregation techniques in one dynamic interface.
We get it. Hardly any companies have the resources needed for perpetual negotiation. However, receiving good deals requires constant communication with suppliers. A business must work diligently with vendors to strike a balance that benefits both parties. Frequent negotiations are very important for a couple of reasons.
First, dynamic pricing means that the costs and sale prices of items change all the time. For that reason, it’s crucial to protect your business by ensuring your purchases are made using set, contracted pricing.
The second reason may seem obvious but is often lost in the day-to-day shuffle: it’s crucial to have the right items under contract. After all, a company’s purchases tend to change every few months as needs and preferences shift. For example, if your business switches to a new type of printer and your contract doesn’t cover the new printer cartridges, you’re losing money until someone renegotiates pricing to meet your increased demand.
However, the negotiation process entails more than finding the best discounts for your business. A business needs to negotiate all terms in the procurement contract. The negotiation should also cover payment terms, delivery timelines, and other components that boost efficiency. With frequent negotiations, you will develop strong partnerships and avoid costly delays to your organization.
In our conversations with customers, we find most procurement departments lack the resources to negotiate more frequently than every 3–4 years. Ideally, you should review discounts at least every 6–12 months to see significant and continual savings. A procurement platform can give you the resources you need for contract negotiations. You can outsource the negotiation process to a dedicated team and achieve the best discounts on your most frequently purchased items.
Consider Tariffs and Supply-Chain Disruptions
Trade tariffs add yet another layer of unpredictability to an already complicated process. In January 2019, companies were already starting to feel the burn of increased tariffs.
Many companies knew there would be consequences but were surprised to see the far-reaching effects on their bottom lines. At least 30,000 parts and commonly used imported supplies found at MRO suppliers such as Grainger, MSC, and HD Supply saw price increases of approximately 15–30%.
Along with tariffs, the supply-chain disruptions caused by COVID-19 have changed how businesses operate. Facing massive shortages and negative supply shocks, many businesses needed to find alternative options to keep their building maintenance, repair, and operations on track. Considering future risks has become a core strategy in modern procurement processes.
Shortages have led many businesses to adjust their plans and develop a more flexible approach. By using procurement data, you can monitor the availability of various items in the industry. If an item looks to be running low on supply, this is a signal for the business to purchase enough to avoid delays.
The takeaway? To come out on top during negotiations, make sure your suppliers are agile enough to accommodate shifts in an especially volatile marketplace. Look for suppliers who have a strategy in place, as well as a track record of pivoting quickly.
Let’s say that, theoretically, your company has negotiated the best possible discounts and has, say, 70% of your purchases under contract. (You’re way ahead in this hypothetical game!) Are you monitoring purchases to ensure you’re actually getting those hard-earned discounts? Most organizations don’t have the time to monitor this important—and often overlooked—step. While this isn’t actually part of the negotiation process, all of your discussions are for naught if suppliers don’t meet your agreed-upon prices.
When working with third-party suppliers, there is always a risk of them not following the contract terms. Conducting routine price audits will ensure you receive building maintenance supplies for the agreed-upon prices. A facility manager should schedule routine price audits that document dynamic pricing. If there aren’t enough resources, a digital buying assistant can aid the process.
Additionally, as prices fluctuate for items, you should receive the ideal dynamic pricing for them. If you don’t keep track of the changes in the market, you may miss out on crucial discounts for building maintenance, repair, and operations supplies. In a changing market, you must stay informed on the latest supply-chain trends in the industry. Fortunately, there are many ways to monitor dynamic pricing for your business.
The solutions? If you’re fortunate and have extra hands on deck, you can delegate this job to a dedicated team of buyers when negotiations are complete. Another alternative is working with a managed service that consistently focuses on supplier relationships. With an optimized supply-management platform, alerts help you audit the prices of supplies and ensure that you receive the deepest discounts.
Let Raiven Help Improve Supplier Contract Negotiations
If you’re looking for procurement solutions, Raiven can help with bringing order to supply-chain chaos! Raiven optimizes your purchasing and supply chain management with the lowest prices on equipment, parts, and maintenance supplies as well as a purchasing platform that makes buying fast and efficient. Key benefits include:
- Pre-negotiated discounts that are generating average client savings of 7-25%+ from big name suppliers like Ferguson, HD Supply, Grainger, Graybar, Office Depot, and more.
- Supply chain alerts for price and product availability changes on the items that matter to you most.
- Private marketplace houses all your preferred suppliers in one location for easy access to your discounts. No more bouncing around websites comparing prices.
- AI-powered purchasing tools that find the lowest prices even when employees shop outside your network.
Raiven is your one stop shop to save time and money. Visit Raiven to learn what we can do for you.