One of the many crucial aspects of supply chain optimization is supplier negotiations. The most common negotiation tactic is usually to try and reduce a supplier’s current prices. However, one negotiation approach that would benefit and reduce the cost for both parties is to work within the supplier’s standard lead time. Done right, you could do away with expedited delivery costs.
Determining Your Supplier’s Lead Time
To determine your supplier’s lead time, ask what drives it — is it purchasing raw material, scheduling, or other elated factors? Once you know the answer to these questions, you would be better equipped to help your suppliers in managing their costs and time, which in turn could lead to reduced prices.
One way to work within the lead time of your suppliers is to offer longer-term financial commitments to help reduce their costs. In turn, your suppliers would be amenable to pass on the savings to you.
For example, if you require 120 items from a supplier every month, you could get lower prices for their manufacturing costs by ordering in bulk — let’s say 1,440 for the entire year. This way, your supplier could hold on to your order and then deliver 120 items to you every month.
Doing this would give your supplier the opportunity to order materials in bulk, which in turn reduces their costs. Do note that you’re taking a risk with blanket or long-term orders since you’d be financially responsible for their value even in you don’t necessarily have the entire order in your hands. For instance, if you made a purchase order for 1,440 items and realize that you don’t really need the 440 items, you still need to fulfill the order and pay for them.
When trying to optimize your supply chain, keep these negotiation tactics in mind. When you understand the supply chain of your suppliers and their lead times and give them a longer-term outlook of what you need, you could help lower their costs, which in turn could lead to them lowering your costs as well.