Every negotiation tactic can be used by both the Buyer and Seller. Buyers create the illusion of competition in supply to reduce the price. Suppliers may create an illusion of competition for supply to prepare you to pay more. This is done in a number of ways:
•Suppliers may talk about an upswing in demand that will start to create shortages.
•They can announce longer lead times due in part to the increasing demand.
•They may discuss actions of their competitors such as exiting the business, moving to a net generation, which will imply a shortage of material in the market.
•They may talk about increasing demand they are seeing from other businesses or industries that will impact the market.
•They may refuse to quote on lower volume requirements or establish minimum buy quantities.
Whether these are real or an illusion you may never know. What they are trying to do is create an expectation that the market is changing and the supply/demand position on which your previous agreement or pricing was based is no longer valid. They are preparing you for a price increase. They want you to think that there will be excess demand versus supply as that drives prices up.
When its in their favor, Buyer’s should use the concept of market demand to negotiate better pricing from the supplier.
•Buyer’s can talk about an down swing in market demand that will start to create excess capacity.
•They can talk about reduced lead times they are starting to see due in part to the reduced demand.
•They may discuss actions of the supplier competitors such as entering the business, increasing their capacity, which will imply an excess of material in the market.
•They may talk about reduced demand they are seeing from other businesses or industries that will impact the market, especially where that other industry may have caused shortages that drove up pricing.
The goal is to show your knowledge of the market and your knowledge that when there will be excess supply and capacity the price should be going down.Suppliers aren’t going to offer it to you, you need to ask for it.
Want to learn more? The companion book "Negotiating Procurement Contracts - The Knowledge to Negotiate" is now available on Amazon.com. A hotlink to Amazon.com
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