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Home / Blog / 2015 / July / How to get the best deal from your suppliers

When you quote for a big job, do you worry your supplier’s prices, quality of goods or the lack of ability to supply the quantity you need might just put you out of the running for the business?

It’s a common worry for one man bands and smaller trade businesses that they simply cannot compete with the big players in the industry.

For many businesses, it becomes fact that there are some jobs it’s not even worth bidding for.

In this blog you get a step by step guide for negotiating with and managing your suppliers to get the best deal for your business.

What you should look for in a supplier

Before you begin to research your potential suppliers make sure you have prioritised what it is you want. How important are some of the below factors to your business?

  • Price per unit – obviously the more units you order the lower the price will be, however make sure you get a competitive price for a realistic amount you will need
  • Turnaround times – your supplier may be cheaper than others as they import your parts from overseas, make sure they get you in time for you to start your job
  • Quality of product – your supplier may be cheap because the quality of the product isn’t as good as your competitors. Don’t let your quality be sacrificed
  • Financial security – make sure your supplier is financially secure, with a strong cashflow to give you peace of mind that your supplier won’t vanish overnight

Find and choose your potential supplier

You can find suppliers through a range of channels.

Build a shortlist through a combination of sources to give you more choice and the opportunity to find more details about your preferred suppliers. These may include:

  • Recommendations – ask your friends and family if they have had good experiences with a supplier
  • Directories – search through Yell.com, Thomson Local and other directories for a supplier
  • Trade associations – speak with a representative from your regulatory body, such as NICEIC or Gas Safe, to see if there’s a preferred suppliers list
  • Business advisors – there are a range of non-profit business advisory boards that may have a list of suppliers
  • Exhibitions – visit national and local exhibitions to network with potential suppliers
  • Trade press – some suppliers will advertise in your industry’s press and media

Once you have a manageable shortlist, approach the potential suppliers. Provide a clear brief, summarise what your requirements are and give an idea of the level of business you hope to place. Go on to compare the terms that matter most to you.

Wherever possible, meet potential suppliers face to face and see how their business operates.

Remember, your business’ reputation will likely be judged on your suppliers’ labour practices and ability to deliver the goods and services to you. Also consider the ethical and environmental aspect of your supply chain.

Check whether your supplier will outsource any work to subcontractors or relies on other suppliers themselves. You may also want to meet with these to make sure they align with your wider business interests.

Before signing any contract make sure you do your due diligence to check it can fulfil any agreement. Check any potential suppliers to ensure they have the cashflow to deliver what you want, when you need it. It’s also a good idea to get references for the supplier from other customers.

How to negotiate with suppliers

When you have decided which suppliers you want to work with, you will want to get the best deal.

But before you even start to negotiate terms, draw up a list of what is important to you, such as price, delivery schedule or payment terms. Decide what you are prepared to compromise on and what you will want your suppliers to compromise on.

Plan your negotiations beforehand. Set clear goals and know where you will draw the line if certain compromises aren’t met. Ask your potential supplier to do the same.

Play your cards right during the negotiation period. This is similar to a game of poker. Show your hand too early and your supplier will know what compromises you’re willing to make. If you protect your hand you are likely to get a better deal.

Push your supplier to indicate a starting price and details of any discounts offered early in the negotiations. Never accept the first offer they make to you. They are testing the water and you should too. Reject the first offer and make a low counter offer in return. More often than not they will come back to you with a revised figure.

Always ask what else the potential supplier can add for the same price. You’d be surprised how many suppliers will offer you extras to win your business. This works both ways. If there’s parts of the proposal that you don’t need, see if you can reduce the price by removing these features.

If the price is suspiciously low, beware. Why is the price so low? Are the goods high quality? Do they offer value for money? What will the after-sales service be like?

If you squeeze the price too low, and even threaten to walk away from the negotiations, you may end up getting a poor deal. The supplier may have to cut costs elsewhere which could prove costly to your business.

Keep minutes of what has been agreed and make sure you share a summary of what has been discussed.

Agree the Service Level Agreements

Service Level Agreements (SLAs) are agreements or contracts with suppliers that define what will be delivered and at what level of service, as well as setting out responsibilities and priorities.

SLAs very often form parts of contracts as one or more clauses. Typical SLAs include:

  • The service provided
  • The standards of service
  • The timetable for delivery
  • Respective responsibilities of the supplier and the customer
  • Provisions for legal and regulatory compliance
  • Service monitoring and reporting mechanisms
  • Payment terms
  • How disputes will be resolved
  • Confidentiality and non-disclosure provisions
  • Termination conditions

If suppliers fail to meet agreed levels of service, SLAs usually provide a benchmark for compensation, commonly in the form of rebates on service charges.

When you draw up your SLAs, highlight the most important parts of the deal, so if there’s any failure to deliver or a lack of quality you can apply the strictest penalties. Also include periodic performance reviews, where you can feedback to your supplier and they can feedback to you on issues such as paying on time and the delivery of particular projects.

Build good relationships with your suppliers

It’s obviously wise to keep your suppliers on your good side. To keep your relationships in a good position consider doing the following:

  • Meet your contacts face-to-face to see how their business operates, make sure it aligns with your business
  • Stay in regular contact and update them on strategic changes or new products early, to give them more time to adapt
  • Ask about plans for expansion or development, and consider how this will affect your business
  • Place orders in good time, being clear about deadlines and paying on time
  • Make sure you have systems in place for purchasing, stock control and payment
  • Refer other opportunities towards your supplier, and vice versa
  • Make sure you’re important to your supplier and they will work harder to keep you, however beware of exclusivity agreements that may make it harder for you if they go out of business

How to end suppliers’ contracts

If you decide to end a relationship with your supplier for any number of reasons, such as if there’s a problem with the quality delivered or a better value alternative elsewhere.

Firstly, check any penalties for terminating the deal early, ideally you will have included an exit clause for terminating the deal early, minimising what you have to pay.

As well as financial concerns, you may have to face disruption to your business operations during the transitional period. Make sure you get all the relevant information from your supplier to make the transition smoother, and if possible negotiate a handover process between the two. To avoid these problems consider seeking legal advice when drawing up contracts.

Make sure guidelines in place, as to not alienate your supplier in case you need them again in the future, and explain why you’re ending the contract. They may be able to offer you a better deal and save you disruption by lowering the price or raising the quality of goods or services.

The Mr. Electric Advantage

With Mr. Electric we negotiate with and manage suppliers on your behalf.

With Mr. Electric we negotiate with key accounts, such as HomeServe and AXA, to get you the best deal, as well as with electrical suppliers. For example, our recent LED lighting agreement has meant Mr. Electric franchisees get market leading solutions at wholesale prices.

The LED lighting agreement has meant franchisees in Birmingham and London have easily won contracts to supply LED lighting to two different schools, undercutting competition on price and enjoying a healthy profit for themselves.

If you would like to find out more about how Mr. Electric franchisees can focus all of their time on their business, with the added bonus of a large brand name and market leading supplier agreements, click here to find out more.

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