Ask for Cost Reductions NowDate: 07/15/2019
A buyer may only look for lower cost when shopping for a new product or when considering a different supplier. Some buyers only negotiate with a supplier when placing a repeat order.
There are other favorable times to negotiate and now is one of them. It is a good time to get a reduced cost when inflation is low. Suppliers are not expecting to have their profit rapidly eaten away when they don’t think their material and labor cost are going to rise very much.
In fact, you may be able to get a commitment to keep the present price the same for one or more years, or even obtain a lower price for an extended period of time.
Of course, keep in mind, that price is only one of the components of cost. The supplier may have no problem with giving you better payment terms. For example, try to change normal payment terms of Net 30 to 1% 10, Net 30, or something even better. Try for 1.5% or 2.0% 10.
Another cost component that may be available for a saving is transportation or delivery charges. Associated with the transportation charges is the packaging of the product.
Encourage the supplier to redesign their shipping package to reduce cost. The objective is to reduce weight or volume used. In fact, the way items are packed, such as rearranged by nesting or alternating their position, can reduce the volume needed. A redesigned package can also provide better product protection and reduce breakage. That too is a saving.
You should act now because the present low rate of inflation is not likely to last. It is below the target rate that is the objective of the Fed and economists to avoid wide swings in the economy.
Don’t expect all of your suppliers to cooperate, but your request for a lower cost may make them reluctant to ask for an increase, or for as much as they otherwise would.