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Renegotiating Your Supplier Contract

 
 

Like any other relationship, your company’s relationship with its supplier must be nurtured over time to stay productive. Because growing companies have changing needs, it’s important to revisit the terms of your supplier contract on a regular basis. That’s why many companies prefer to limit supplier contracts to one year. By returning to the negotiating table each year, you can have more influence over the supplier relationship and be better positioned to advance your own company’s needs.

 

It’s important to keep emotions out of the negotiation process. This will help you make decisions more objectively and can help maintain a good relationship with your supplier – even if negotiations become challenging.   When it’s time to discuss your supplier contract, follow these five strategies for successful renegotiation. 


  1. Know Your Supplier
    Remember that your supplier isn’t just a provider of goods, but a company itself. Take time to understand the negotiation from the supplier’s point of view by researching its business model, production costs, market reach, and goals. This can help you frame your position in a way that also addresses your supplier’s needs. Show your supplier’s representatives how meeting your company’s requests can help them achieve their own goals.
  2. Stay in Communication
    Year-round communication is key. If you make your supplier aware of your concerns right away, your supplier will be in a better position to offer solutions when you renegotiate your contract. Plus, open communication can inspire goodwill from your supplier by demonstrating that you view it as a valued partner, not just another vendor. 
  3. Research Costs
    Negotiating the best pricing or terms requires a clear picture of your supplier’s market and competitors. If keeping supply costs low is important to your profitability, find out everything you can about production costs, economies of scale, and other factors. This will help you understand your supplier’s pricing constraints so you can set realistic goals and form an effective negotiating strategy.
  4. Talk to Other Suppliers
    Even if you’re happy with your current supplier, it’s important to know how its offerings compare to those of its competitors. Speak with other suppliers – or business contacts who’ve done business with these suppliers – to learn about their pricing, terms, and unique benefits. If other suppliers seem to offer a better deal – such as greater customization or faster turnaround – bring this information to your negotiations.
  5. Build a Partnership
    A successful supplier relationship depends on more than just pricing. As you advocate for your company’s needs, be careful to take the supplier’s needs into account. Like you, the supplier is affected by market forces and economic constraints that may make some requests unrealistic. Working toward a happy compromise – and not a one-sided deal – can inspire loyalty from your supplier and create a better working relationship.  

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The information contained herein is for general informational purposes only and does not constitute tax, legal, or business advice.