Supplier contracts – no one likes them, but all Facility Managers have been here. Whether it’s cleaning staff, renovation work, furniture or everyday office supplies, procuring them can be a massive headache.
Handling supplier negotiations can be challenging for growing firms handling these contracts for the first time. At the same time, the increasing complexity of facilities in large firms requires larger and more sophisticated contracts.
Not to fear, these 3 tips will help you come out on top when creating and negotiating supplier contracts.
1. Leverage Your Growth or Size
Entrepreneur.com recommends negotiating with suppliers the way you’d negotiate with an investor:
“Put your best foot forward, and let them believe in your company as much as you do. For instance, let your suppliers dream of the day when you’ll be their biggest customer. Negotiating a deal on favorable terms will be considerably easier when they perceive your business as a potential long-term client”.
For growing companies negotiating contracts for the first time, leverage your growth potential. Speak to your growth trends, and how much potential additional business you might bring to the supplier. Convince them that you will be a major account in the future and you can reap the rewards.
For large companies, use your existing size to gain leverage. Your company may have multiple offices, even though you only manage one. Play up the scale of your business to get a better price. The supplier will view your business as the chance to work with other company offices as well.
2.Do Your Research
Know the product or service you need well. This knowledge gives you power in the negotiation. Several easy sources are available for research:
Use Google to look up major suppliers in your local area, as well as their competitors. Use knowledge of the competitive market in your negotiations. After all, no one wants to lose good business to their biggest competitor.
Other sources, like Reddit or Quora allow you to ask specific questions. Try asking Quora, or Reddit to get insider insights on the services being provided, or get local recommendations. An example is this Reddit thread where a real HVAC contractor answers questions about the trade.
Additionally, Linkedin Groups like IFMA connect you with other facility managers or suppliers directly. Linked Groups are another forum where you can ask direct and specific questions regarding work required.
Write down a few notes on what you think fits your needs best and compare it to what the supplier is pushing.
Investing an hour of time in research will pay off. The pay-off could be in cost savings or better terms of service. These save you money and time in the long run.
Research Tip: Consider Local Options
Don’t overlook local suppliers in your research.
The Chartered Institute of Procurement and Supply (CIPS) notes that choosing local suppliers can provide several benefits. Benefits include the fact that local suppliers place a greater emphasis on serving their local community. Due to this, local suppliers can offer a high level of service at a low price. Lower shipping costs (local) and lower supplier overheads could also contribute to low prices.
3. Set Performance Criteria
Facility managers will use hundreds of suppliers and vendors throughout their careers. It’s is therefore important to create performance criteria. Criteria allow you to assess and track supplier and vendor performance.
Setting performance criteria allows you to fine tune and measure aspects of a contract that may have gone unnoticed. As a result, you can use there criteria to adjust future contracts. Adjustments can include incentives or penalties around areas of weak performance. The outcome can be better future performance.
One simple approach is to build a vendor or supplier performance scorecard. These key criteria can include: ability to meet timelines, budget, and quality of work. Likewise, for suppliers, criteria can include delivery time and response time for service requests. Various templates exist and other resources show you how to easily build these scorecards.
If you want an out of the box solution, firms like MetricStream provide options. Below is a their process for Supplier Performance Management. Steps include supplier performance scorecards. The CIPS has additional resources available as well.
MetricStream’s Supplier Performance Management Process. (Source: MetricStream)
Investing in the Future
Vendor and supplier management is by no means an easy process. However, investing that extra time to properly set up strong supplier contracts will aid you in the future. With strong supplier contracts and expectations, you will be able to deliver on your key metrics and build a stronger, better workplace for your teams.
