A key challenge when negotiating with suppliers is being able to identify what the best deal looks like, a masterclass was told.
Marzia Storpoli, head of commercial for CIPS Africa, said everyone was looking for the “best deal”, but market knowledge was critical to understanding what this was.
“One of the challenges we face is knowing what the best deal is in any situation, not just the negotiation,” she said, speaking at the CIPS Pan Africa Conference in Johannesburg, South Africa.
Carl Coetzer, managing director of ADR International South Africa, said it was possible to strike a deal where both buyer and supplier felt better off as a result.
“Both parties walk away from the table both feeling a little satisfied because rather than just cutting the pie, we have made the pie a bit bigger,” he said.
Coetzer said the way to achieve this outcome was to move away from price and instead to understand a supplier’s costs. In this way a true negotiation could take place, by acknowledging a supplier’s costs and margin and then striking a mutually advantageous deal.
Coetzer said there were a number of different ways to price products, such as historical price (often linked to an index and raised by a percentage each year), market price and marginal cost price (based on production costs with an added margin).
“Suppliers have different pricing policies – the first thing is to understand their pricing policy,” he said.
He cited a Bank of England survey that found 35% of firms based prices on a margin, 25% based their prices on what competitors charged and 40% charged what the market would bear.
“Focus on the cost, not the price,” he said, adding that cost was made up of materials, labour, overheads and profit.
It was also critical to understand where you ranked a supplier, in terms of whether the relationship was transactional or strategic, and in turn how important you were to them as a customer.
“In a negotiation I need to understand where I place my supplier and where my supplier places me,” he said.