How To Negotiate With Suppliers For Lower Cost


This article is one among the various articles still to return during which i will be able to discuss very basic yet proven techniques that you simply could use immediately in your encounters together with your suppliers.

Oh but wait, to seek out any value during this article, you want to be a firm believer that buying strategies have evolved from just 1) that specialize in price and 2) that specialize in quality, reliability, responsiveness and total cost to a way broader focus of building supplier relationships.

Did you recognize that for every $1.00 you save in your “total cost of ownership” reduction efforts, you’ll improve your bottom line profitability by $1.00? And did you furthermore may know that the majority companies don’t get this idea and continue focusing their resources altogether the incorrect places?

Now is the time once I want to share with you 4 basic rules that have proven to figure and work alright to assist you create the partnership relationship together with your supplier and permit them to equally enjoy the experience also .

Rule #1: Getting direct cost savings is basically a thing within the past. Getting savings has become increasingly difficult to realize as your suppliers face similar predicaments themselves and operate with little or no room in their margins to wiggle.

Rule #2: To affect your bottom line, using 80/20 rule, work on reasonable incentives to approach your top 20 suppliers with and build a “preferred” supplier base.

Rule #3: Communicate to your suppliers on “how to” earn a “preferred” supplier status and what’s required of them to stay a “preferred” supplier.

Rule #4: Tell your suppliers what’s in it for them (WIIFT) as they partner with you and build a “preferred” relationship.

To earn a “preferred” status means your supplier will have the primary shot to quote on new business, parts and project. actually you’ll go thus far on create “earn a point” program whenever you achieve your cost reduction goals using these techniques as they apply to your business.

Supplier earns a previously prescribed point(s) when:

1) Shared tooling costs or shared engineering costs on a project

2) Extended terms: 60 or 90 day billing terms for a period of 1 year

3) Certified as “ship to stock” on all supplied parts or assemblies for a period of 1 year and remain compliant for each year thereafter

4) Ship zero defects for a period of 1 year and continue intrinsically for each year thereafter

5) Work with purchasing, manufacturing or engineering to feature value

Working together with your suppliers to explore these techniques not only presents opportunities for you to scale back your “total cost of ownership” but also helps your suppliers to review, improve and streamline their processes and grow internally to be ready to meet your expectations and earn that “preferred” supplier status.

Use this “total supply chain cost” model as your guide to isolate and specialise in the particular cost elements impacting your bottom line profitability.

Total supply chain cost=

Buying price=

+Supplier performance cost

+Cost of acquisition

of-sync planning

-Speculation returns

+Speculation cost

+Mfg. cost

+Selling cost

+Distribution cost


=Selling price

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