In these days of economic liberalization and globalization let us rename the traditional word negotiation between buyer and supplier in a manufacturing industry context as Price agreement. The traditional word negotiation makes the supplier uncomfortable and let the buyers give a feeling of Win win atmosphere to the supplier. Word negotiation may be relevant for other areas than in industrial purchases.

This article on price agreement will focus the critical approach for a successful price agreement between buyer and supplier.

Buyers role/approach:
Before discussions, Create a database to comprehend the cost of materials, process etc, so when you sit with suppliers, they know in advance what things should cost. And if their cost is not at that level, they can discuss what can be done jointly to get to that level.
When the discussion on pricing begins, listen carefully, stay on point. Be assertive--not aggressive. You have a right to expect cooperation in fixing a price. You have a right to ask for items on your "want" and "need" list. Failure to prepare may cause discussions too longer and difficult. Buyers should try to use the information given by the supplier to his advantage.
Ask for cost details, timely delivery, lead time, packing , raw material sourcing, price fluctuation clause, Volume discounts, logistics, warranty and other commercial terms.
Ask questions that require more than "yes" or "no" answers.
Your supplier may not agree for your target cost at the first round of discussion.
Brief your supplier, your requirement in full and future volume and new business expected.
Purchasers should be sensitive to news about new technology in the market, be able to assess its potential impact, and ensure its conveyance to suppliers.
Knowledge updating is key to achieve the desired goal.
You are discussing over a product, not a personality. Do not use double talk or veiled allusions in an attempt to stymie the other party.

Suppliers role/approach

Prepare your cost justification in a scientific manner.
Your working should be transparent.
Market price working may not be necessarily acceptable to your buyer. Remember buyer may be under tremendous pressure from his sales.
Try to understand buyer’s requirement fully. Collect more information and data’s from the buyer and use them.
If you are not in agreement with the buyer, gain time, discuss with your staff and re work costing wherever possible, arrive new solutions.
Please remember your customer is very important for you.
To conclude, It is very essential for both buyer and seller should work with full confidence and trust to achieve a price agreement.

L.N.Raghavan Consultant

Mr. Lakshminarasimhan Raghavan

(Tradeindia Expert)

Freelance

Consultant, Freelance
Chennai, India