The ability to effectively negotiate costs, delivery times and purchase terms is an important asset for electronics buyers in any market condition. The skill becomes even more critical when cost-cutting, thinner margins and high levels of competition prevail—a trio of challenges that nearly all organizations are grappling with right now. To offset those hurdles, buyers must strive to get the best possible price and purchase conditions on all orders and contracts.
In most cases, negotiation comes into play as buyers strive to achieve that goal. And though many people associate negotiating with negative, cutthroat, price reduction tactics, when done right the process should involve “understanding what the other party values and then building that value into the cost and terms of the deal,” says John Hutchinson, president and CEO at Cincinnati-based software solutions provider Vinimaya, Inc., which specializes in eProcurement and B2B shopping solutions for buyers and suppliers.
Understanding what the other party values is crucial to good negotiating, says John Hutchinson, president and CEO, Vinimaya, Inc. To achieve the best results from their negotiating, electronics buyers should follow these five important steps:
- Rise above the negativity associated with negotiating. The term “negotiate” comes with negative connotations—particularly for suppliers who feel like their margins have been cut to the quick by buyers’ wheeling-and-dealing tactics. “It’s not about cutting your vendors down as far as possible on price,” says Hutchinson. “It’s about an exchange of items that might have different values to the involved parties. Keep this in mind as you look at the various negotiating points.”
- Offer something of value to your suppliers. Effective negotiations are generally win-win. In other words, all parties should come away from the experience with a positive feeling. To make sure that occurs, Hutchinson says procurement professionals should always offer something of value in return for the cost reduction (or other concession) that the buyer is seeking. To get a particular shipment of parts down to the desired price point, for example, the buyer might offer the vendor a 6- or 12-month contract for future orders of the goods. Another alternative is to offer that same vendor more business from other areas of the organization.
- Do your homework in advance. By collecting information about suppliers, their products and services, their competitors, and general market trends in advance, you’ll come to the table much better prepared to prevail during the negotiation process. During this pre-planning stage, be sure to consider any previous vendor agreements, the product’s or service’s current market prices, what other suppliers are offering, and the vendor’s current financial position. “By looking into these and other important factors upfront,” says Hutchinson, “buyers will find themselves in a much better negotiating position.”
- Consider the total cost of ownership. By using total cost of ownership or “TCO,” buyers can go beyond bottom-line cost and develop more comprehensive pictures of exactly what they’re buying, what value that acquisition provides the company, and how much it costs over the long run. And although it may be tempting to compare cost alone when assessing vendor bids, buyers who take into account overhead, implementation costs, employee training costs, transportation fees, delivery times, operational costs, and other company- and industry-specific expenses will come away with a more accurate picture of how much they are spending (in both dollars and time) over the span of the contract.
- Understand your negotiating partner’s key drivers. To achieve the best results from their negotiations, electronics buyers have to understand myriad business models. That’s because they work with a wide range of vendors, each of which has its own set of values and standards. “To effectively negotiate a partnership, the buyers have to understand the key drivers of the industry that they are working with,” Hutchinson advises, “and then marry those values with their own offerings and negotiating points.”
In the end, remember that effective deal-making in today’s business world shouldn’t be about “negotiating tricks,” says Hutchinson, but rather about understanding the vendors’ business models and using that information to figure out the optimal mix of costs, terms, and other negotiating points that will help your company operate more efficiently.