The Art Of Dealing With A Sole Supplier

by drjim on November 2, 2018

Your options are limited when you are dealing with a sole supplier

Your options are limited when you are dealing with a sole supplier
Image Credit: Brendan Riley

If you view starting a negotiation as going into battle, then you’d like to be able to start things off being balanced. Neither side should have too much of an advantage, both should show up ready to do battle on a level playing field using their own set of negotiation styles and negotiating techniques. However, as always seems to be the case in life, things don’t always work out this way. In the world of negotiations you can find yourself at a distinct disadvantage right off the bat if you are negotiating with someone who is your sole supplier for a given product or service. What’s a negotiator to do now?

Setting Up A Sole Supplier Negotiation

So right off the bat we need to understand what we are dealing with when we find ourselves negotiating with someone who is one of our sole suppliers. We will have a poor BATNA (best alternative to a negotiated agreement) and this is going to end up putting us in a position of weakness. This means that even before the negotiations start, we’ve got work to do. Since we don’t have a lot of alternatives, we’re going to have to control what alternatives the other side has.

You are going to want to set the negotiation up to favor you. This is going to involve making sure that you involve the parties that will be impacted by the negotiations, that you make sure that during the negotiations the right sets of issues are going to be discussed, and you are going have to make sure that the right outside alternatives are known. If you can accomplish this, then you will have increased the odds that the sole supplier that you’ll be negotiating with will view the agreement that you put on the table as being more attractive than any alternatives that they may have.

Focusing On Interests

One of the first things that you are going to want to accomplish once the negotiations have started is to identify who you are really negotiating with. This means that you need to ask questions of the other side in order to determine who the parties within the other side’s organization are who may be affected by any agreement that they reach with you. It’s going to be their interests that will be driving the other side.

You can get the answers to these questions by doing some probing of the other side. How will their sales team be rewarded and even promoted? Who is going to be responsible for approving the negotiation agreement on the other side? How are the approvers going to be rewarded? One of the most powerful things that you’ll need to determine is if there is any way for you to create a coalition of parts of the other side that would be in a position to support any agreement that you can reach.

Evaluate The Other Side’s Alternatives

When you are negotiating with a sole supplier, you really don’t have all that many alternatives available to you. However, the other side does. What you are going to have to as a part of your negotiation strategy is to take the time to evaluate the other side’s alternatives.

What you are going to want to determine is how things could play out based on the results of this negotiation. There is no guarantee that the two of you are going to be able to reach an agreement even though they may be one of your sole suppliers. What is this going to mean for the other side? You need to understand how the other side would be affected if they were not able to get your business. Losing you as a customer would defiantly impact their bottom line. You need to determine if the loss of you could somehow be replaced by other customers.

Round One

It’s going to be important that you take the long view as you enter into this negotiation. What that means for you is that this particular negotiation is only round one in a much longer game. This means that there are a number of questions that you are going to have to find the answers to.

The questions include determining how much less you would pay the supplier if in the future they had competition. What would the present value of those payments be? Keeping the long term in mind, how much would it cost you to bring in another supplier or reengineer for a substitute product? You are going to have to determine if the benefits of having a better alternative exceed the cost of getting it. If this is the case, then it makes sense for your firm to invest now in order to create competition before the next negotiation.

What All Of This Means For You

No negotiator wants to find themselves in a situation where they are facing off against someone who is one of their sole suppliers. It’s all too easy for a negotiator to feel as though they are powerless in a situation like this. The good news is that we are not powerless, we just need to understand what we need to do.

If you want to be successful in this type of principled negotiation, then you are going to have to set things up for success from the beginning. You need to make sure that the right people are there and that the right issues are going to be discussed. Once the negotiations start, you need to find out who on the other side is really going to be calling the shots. Who will this negotiation impact? Although you may not have many alternatives when you are negotiating with a sole supplier, you need to take the time to find out what their alternatives are. Finally, you need to view this negotiation as being round one of a much longer set of negotiations. Determine how you are going to be successful in the long run.

The good news about negotiating with a sole supplier is that you do have options. You need to do your homework and make sure that you use the negotiation to get answers to the questions that you need to know. Taking the time to structure a sole source negotiation correctly can get you the results that you thought were unobtainable.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™

Question For You: Once you know who will really be making the decisions for the other side, should you insist that they take a place at the table?

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What We’ll Be Talking About Next Time

The goal of any negotiation that we participate in is to use our negotiation styles and negotiating techniques tofind a way to get the other side to agree to our proposal. There are a lot of different ways that we can go about trying to make this happen. We can beg, we can threaten, we can bribe, we can entice. However, it turns out that one of the most important things that we can do is to present our proposal in a way that will make the other side want to go along with it. This is called framing and it’s a critical part of any negotiation.

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{ 1 comment… read it below or add one }

Brian Gunia November 7, 2018 at 10:25 pm

This is a very difficult situation, and you’ve provided some useful tips. Upon probing, the negotiator may find that their sole supplier also views them as a critical (if not their sole) customer. So the power imbalance can be less severe than it seems at first blush.

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