Inventory Management
Procurement
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Most practices assume that your order volume alone should earn you discounts.
The truth of the matter? Your procurement strategy drives savings, not your volume.
Remember that each $1 saved in your procurement process can translate into a $3-4 boost in production value, therefore a strategic approach is key.
This guide provides three key considerations beyond order size to help you negotiate with your suppliers. Refining your procurement princess can optimize your efficiency while saving you money.
Let’s dive in to learn how you can improve your negotiating skills and uncover hidden discounts you otherwise would not receive.
One effective ordering strategy that drives down price is the competitive inquiry. The power of the competitive inquiry is so strong that you may be surprised by the deals you will be offered.
So how does this so-called competitive inquiry work?
Easy. You send your item list to 2 or 3 distributors, advising each one that they have a fair shot at winning your business. You let them know that you are seeking out potential deals with competing suppliers, and the lowest price will ultimately win your business.
You award items on an individual basis rather than sticking with one vendor. Whoever can get you a specific product at a lower cost gets to sell you that product. This keeps all 2-3 suppliers engaged with you over a longer timeframe, and may open the door to deals tailored to keep your business.
Sticking with a single vendor leaves you at their mercy, whereas attempting this strategy with more than three can cause disorganization - something suppliers prey on. This competitive inquiry approach gives you the power of negotiation by:
This strategy is simple yet effective in finding deals for your practice that otherwise would’ve never been uncovered. Let’s move on to another strategy to lock in the prices of these offers.
A business hack is locking in quoted pricing for extended periods. Once you’ve received competitive quotes, the next step is making sure they don’t disappear. You must be privy to supplier pricing strategies to actively combat them.
So how can you lock in these quoted prices for 3-6 months? There are a few methods to apply pressure to suppliers and prevent price hikes. Without this applied pressure, distributors like to revert their product prices within a couple of months, attempting to avoid giving you the same deal they initially offered.
Strategies to lock in pricing include:
The first strategy to lock in these prices is to create a binding commitment. A contract or signed commitment to the offered prices will ensure that the distributor adheres to a promised price. You can also send a signed inquiry or memo stating that, among various vendors, the lowest price wins your business for the next quarter. This often convinces distributors to stick with their best offer.
Another method to maintain quoted prices is to refer to previous purchase orders, rather than websites, when negotiating a new order. Oftentimes, the posted price on a company’s website will be inflated. If you’re disorganized, you may default into paying these higher prices.
You can also pay attention to the fine print. Quotes often have expiration dates, but you can use this to your advantage. By knowing when the quote is set to expire, you can plan for renegotiation right before prices creep back up.
The name of the game is organization. Having signed commitments, clear demands, and maintaining records you can refer to will ensure you lock in the lowest possible price. Understanding distributor practices is a great way to benefit your practice’s bottom line.
One common mistake that practices make is thinking the only way you have leverage is through large volume orders. Unfortunately, this line of thinking can be detrimental to your cash flow and inefficient to your overall business operation.
Large volume orders don’t get you deals - competition does. Suppliers prefer a competitive and fair process to massive orders that expend much of their resources. Making suppliers compete is the tried-and-true method to build your leverage - even if you only spend $20,000 a year.
This competitive inquiry and quote process creates urgency on the part of suppliers. They know they will only win your business if they beat their competitors. Keeping suppliers on their toes will uncover deals that large orders simply would not reveal.
Large volume orders may only be viable for larger suppliers; this limits your choices for partnering with other vendors who otherwise would have offered better prices. Having a smaller pool of viable vendors also makes the offers less competitive, forcing you to pay more.
You need the right strategy, not the largest order.
Securing the best possible price is not something only highly skilled negotiators can accomplish. With a straightforward process, your practice can be competitive at the negotiation table and bring home great deals.
Distributors prey on practices being small and disorganized. While you cannot control your size, you can be organized. Sending competitive inquiries, keeping your records clean and available, and ordering with intent will get you the best possible prices.
You need technology that will maintain this level of organization for you. By integrating with tools like Method, you can:
Ready to enhance your procurement strategy? Schedule some time with one of our experts to see how leading practices are transforming supply chain management.
