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Unit 11: Wholesale Purchasing and Negotiation with Vendors
with single-sourcing. This offers companies the ability to negotiate significantly lower prices Notes
for items that they were purchasing from a number of separate vendors.
11.6.2 Vendors are Partners
The emphasis in negotiation moved away from lowest price scenario to negotiating with fewer
vendors to obtain the lowest price with the best service, quality and conditions. The aim for
companies were to reduce overall spends rather than negotiate lowest price with a large number
of vendors, which did not give the best overall result. The negotiated long-term contracts with
a smaller supplier base have produced more of a partner relationship between buyer and supplier.
The relationship can become less adversary which benefits buyer and vendor. In a partner type
or relationship the buyer will encourage the vendor to increase quality and service and the
vendor knows that by doing this the partnership will continue with a renewed contract with
guaranteed sales.
11.6.3 Negotiation or RFQ
Non-government purchasing departments continue to offer a range of prequalified vendors a
Request for Quotation (RFQ) for items or services that it wishes to purchase. The competitive bid
process can produce a range of bids and conditions that the purchasing department will evaluate
and then award the business. This may or may not involve some form of negotiation. Most
negotiated business will involve items or services that are not necessarily definable by an RFQ.
The purchasing department and the vendor will negotiate more than a price. The negotiation
will usually cover what is to be manufactured or what is the extent of the service to be provided,
the warranty, the transportation services, technical assistance, packaging alternative, payment
plans, etc. Purchasing items or services of significant cost will require extended negotiations to
arrive at a final contract.
Purchasing professionals are required to participate in these types of negotiation to ensure their
companies obtain the best price with the most favorable terms, and staff may need to be trained
in negotiation methods as it becomes more commonplace in a difficult economic climate.
11.6.4 Negotiation Objectives
Purchasing staff should enter all negotiations with clearly defined objectives. Without having
objectives the possibility for the purchasing professional to concede on price, quality or service
is significantly raised. The negotiator should enter into discussions with the vendor with precise
objectives that they wish to achieve for their company. The objective should not be absolute and
should allow for some flexibility. However, the negotiator should also ensure that they do not
deviate from the objectives and allow themselves to negotiate on areas that were not part of the
discussion.
Example: A negotiator may have worked with the vendor on their objectives on price
and service, but not quality.
When the vendor starts to discuss quality, the negotiator should refrain from any agreement
where they are without a set objective. Negotiation is an important part of the role of the
purchasing professional. It is a skill that is learnt and training can help purchasing staff in
understanding what is needed when negotiating with vendors.
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