As you’ll know from your personal life, the most loyal friendships are earned through experiences, challenges, and good times. So why should be any different with your suppliers?
If you have a vendor who constantly demonstrates great performance and continues to deliver and deliver and deliver…reward them! Give them extra projects or new developments and more business. Don’t continue to pressure them and penalise them, because this relationship might erode over time. Perhaps it could still functional and transactions will happen, but the relationship will be affected as a result.
Here I have collected three typical mistakes that will destroy trust between a procurement organisation and its suppliers.
1. Empty Threats
“Be constructive in your arguments and honest in your feedback…”
This was one of the first lessons I learned from a mentor when I asked about contract negotiations. It’s simple but powerful and it genuinely creates trust.
If you are bluffing –a professional partner will recognise it. And you want to work with professionals, right?
Walk the talk. If you’re claiming that a supplier is offering a better price – be able to prove it.
Making empty threats is either the result of a lack of preparation or a lack of any decent arguments full stop.
Remember that trust is the base for a good partnership. And fake promises can easily destroy trust.
2. Continue negotiations after contracts are signed
I have to confess that I’ve done this many times in my procurement career so I understand how harmful it can be.
There is an unwritten rule for sales people that states you should stop selling after the client has agreed to a deal.
The very same rule should be applied to procurement professionals. We should have the ambition to reach the best deal within our budget and time limits, we should consider risks and potential threats but all of this should happen before we agree the final contract. After the two parties agree prices, terms and conditions of contract, everyone should concentrate on execution.
Normally we set certain deadlines for the supplier selection process and close to these deadlines we can become more and more stressed, losing focus and failing to mention important details or opportunities. As a result we often finalise the agreement not because we are sure that this is the best deal, but because we are short of time. And then, after the documents are signed, we attempt to save costs further with the vendor.
Procurement professionals must act professionally in such situations. Simply opening up new negotiations with the vendor will destroy trust, sending the signal that the agreement means nothing to you and that you’ll happily switch to a better alternative whenever you get the chance. As a result, they will also de-prioritise you as a customer and not invest the time and efforts into developing your products.
If you see an opportunity to decrease prices after the contract is signed, be open and transparent to your vendor. Explain your reasons set the arena for a new discussion and listen carefully. With any luck you can find a solution that suits you both.
3. Focusing only on price reductions
I like to explore competition in Procurement! Preparing a good RFQ/RFP process and making suppliers fight for your business is great isn’t it?
Doing this process a number of times within the same product group will definitely lead you to a dead end. You’ll reach a threshold where quotation will not bring more savings. It’s a frustrating moment when there is no more low hanging fruit, no more chances to cut the prices by reverse auction or bidding processes. So now what?
In most cases the extra revenue can be gained in more ways than simply cutting your suppliers’ margin or increasing purchase volumes.
Look into the business relationship, the supply stream and the infrastructure of the business and investigate where we can save costs and do things better, faster and smarter. More often than not, if we really find this momentum and use it to reduce costs, we will get bigger volumes into this business. New projects will come and more development will happen if the relationship is strong and there is trust. This will also result in more revenue coming to both sides – it’s a win-win.