'If your MRO prices are the best, prove it'
By Staff -- Purchasing, 12/13/2007 7:00:00 AM
Purchasing jobs often involve negotiations. And purchasing's smartest negotiators move from conflict to collaboration fast. Match your wits against these pros. Guess their strategy. Then, read what they really did atpurchasing.com/negotiations.
Among the possibilities: Ask other suppliers to quote on the business, change suppliers or accept the supplier's word that prices were right.
An industry leader in MRO (maintenance, repair and operations) integrated supply had saved huge sums of money by integrating their supplier into their operations. The company was spending hundreds of millions of dollars a year with the supplier. But, with the contract up for renewal, the MRO commodity manager wanted to ensure that his internal customers were satisfied with the agreement the company had with the supplier.
Problem: Internal customers in the company pushed the MRO commodity manager to get additional savings from the supplier. The supplier, on the other hand, said it was already giving the best pricing possible. The MRO commodity manager's challenge was to find out if that was true: if not, to get more savings; or if so, to prove it to the internal customers. Approximately 200,000 SKUs (stock keeping units) were at stake.
Solution: With the number of SKUs, the commodity manager knew the supplier’s competitors would either not quote, give a standard reduction off list or “low-ball” an offer to try to force a full RFP (request for proposal). Instead, he convinced the supplier to prove that its top-tier suppliers were providing best-in-class pricing, that the supplier’s own margins were the lowest in the industry and that the company itself was receiving the best possible pricing in every category from the supplier.
The supplier provided auditable certifications that its own suppliers were offering it best-in-class or “as good” pricing for the top spend categories. The company also analyzed the supplier’s unit-price competitiveness and the supplier’s markup. In the end, the company streamlined the bidding process by at least six months and proved to itself that it had a best-value supplier relationship.
Are you a black belt negotiator? Tell us about one of your negotiation successes, and we'll print it so others can learn from your experience. Send it to pteague@reedbusiness.com.
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