How to negotiate a supplier demand for price increase?

How often do you as a procurement or purchasing manager receive price increase demand from suppliers?

Receiving such demand is not unusual as a buyer as this is the norm rather then any sign of abnormality. How do you handle this situation?

Actually, your sucess in procuring proactive supplier which understand the trade and able to work closely with your organization will make this issue less of a stress. The sucess of this action will actually help you to a certain extent where this paticular supplier will tend to listen to your woes and needs for justification by them before any increase can be accepted.(refer to my previous blog on cost saving strategy)

However, you may also or rather you will normally received request from suppliers who just need to capture thier own respective profit margin and this demand for increase can be very harsh and hard on your organization and yourself. How do you handle this situation?

There could be a number of options available to you. Analyse a number of potential advantage and disadvantage to your organization.

a) Analyse if your organization is stronger in term of trading value to this supplier. If you are, your chances of slashing the increase or stopping the increase is higher as the supplier will not want to lose a good and loyal account provided the cost impact is minimum to the supplier.

b) If your organization is not a key customer to this supplier,then it is good to plan quickly and use the following strategies:-

(I) Delaying strategy by asking for cooling period of a few weeks to few months and use this period to source other suppliers to compare prices and quality of the material

(ii) Enter into a negotiation to reduce the impact. Example a 10% request can be slash to 5 - 7% for example

(iii) Review material use at present and check for substitute material with same supplier or other suppliers and this can be quite threatening to the supplier itself

There are a number of other potential strategies to be consider as well and you may review this as a team project internally for brainstorming session before engaging the supplier itself with one singular strategy.

To ensure that there is proper rule of engagement, it will be very tactical to have procedure and rules in place and introduce and implement to all suppliers which include procedure on price increase or decrease and this rule of engagement will benefit your organization as a customer.