Keeping costs down with our battle plan!
At present, more and more suppliers are approaching our customers to pass on rising material prices to them – a tense situation, because in some cases the livelihoods of both sides seem to be at stake. One thing is clear: Not every demand can be fully fended off. But it is possible to compromise on a common path through the crisis. Thomas Wandler, negotiation expert and senior partner of Kloepfel Consulting, explains how to mitigate price demands and maintain your position in the best way possible.
Market prices are currently developing rapidly in many material and component sectors. These are the pains of ramping up again after the corona pandemic caused many companies to cut back on resources. Now demand is back in a number of sectors – but suppliers have not yet rebuilt their old supply capacities. The result is a shortage, and prices are being driven up to unimaginable heights. In some cases, supply is also threatened and must be secured.
Price risk and demands from suppliers
It is correspondingly difficult to calculate reliably at present. In view of the volatile markets, prices that have just been negotiated may be invalidated tomorrow. In tenders, we observe that suppliers are sometimes no longer prepared to give a price forecast – they would probably not be able to keep to it anyway. With the help of active risk management, it is at least possible to weigh up in which material segments the price change would have a particularly strong impact.
Scarce resources in purchasing
From the supplier’s point of view, it seems only logical that price pressure should also be passed on to our customers’ purchasing departments. One of our tasks here is to support an appropriate response – because resources are already limited in many purchasing departments, so that a professional price defense strategy seems impossible alongside day-to-day business.
Strategies and battle plan for action
Before a strategy can be developed, you first need to know and understand your competitors. In-depth research on the suppliers to be negotiated with is essential: their market environment, the previous relationship, their goals and motives, hidden margins. In some cases, suppliers currently deliver to the customers you “enjoy most” – this raises the question of how attractive you are to your suppliers. Looking at them individually makes it possible to prepare tailored scripts on the separate players, which come together to form a battle plan. With this, it can go into negotiations.
Negotiation marathon
Once the strategy is in place, it pays off in practical implementation: With the help of a supplier convention, it is possible to reach binding agreements on attractive offers with many suppliers within a very short time. These are usually attractive due to the total amount of purchasing costs saved – in the current situation, however, it can already be a “win” to bring approaching price demands down to a tolerable level. For your company, the Supplier Convention is an opportunity to present itself as an attractive and reliable customer.
Profit together from Avoidance
It is important to define your own goals and pain thresholds for the negotiation. It is possible, for example, that part of the supplier’s passed-on price pressure should be yielded to – to reject the worst-case scenario of a production standstill as well as the unrestrained assumption of the entire increase. The trick here is to precisely determine the limit of defensibility and to take on neither more nor less. In this way, a healthy supplier relationship can be maintained, and avoidance guarantees that the crisis can be survived together.
Help from rigidity, prevent the worst
If a blatant price demand reaches the company for the first time, it can initially come as a shock to the purchasing department. One of our tasks is to provide quick orientation and security for the next steps. Together with our customers, we help prevent the worst – and either maintain the cost position, or only back down as far as is necessary.
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Kloepfel Consulting
Christopher Willson
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40211 Düsseldorf
T: +49 211 / 882 594 17
gm.schneider@kloepfel-group.com
www.kloepfel-group.com