Negotiating with Suppliers and Customers
By Dean Davidson

In order to effectively negotiate equitable terms and conditions with suppliers and customers, it is essential to have an understanding of the capabilities and the value stream of your own organization. After all, when dealing with any entity outside of your company, you should be looking for those that can complement you and your capabilities. Your customers as well as your suppliers should be considered partners to your organization and as an extension of what you can already provide. Effective negotiating means developing a win-win situation for all involved; therefore, when selecting customers and suppliers with which to conduct business, it is critical to select ones that complement your organization and its direction and capabilities.

In keeping with one of the key principles of lean enterprise thinking, you should always start with the customer. Understanding customer expectations specifically in the areas of quality, cost, delivery and service (Q, C, D, and S) enables you to develop tangible and measurable goals. You need to know what questions to ask of customers in order to help them understand what they need and expect. Nothing is more frustrating than dealing with a customer who does not know what they want or expect, and it is very difficult to satisfy them. Although hard to do, it is often smart to choose not to do business with this type of customer as they usually add unplanned non value-added cost to your organization. Some customers may not be right for your organization and can become a considerable drain on resources if you are not able to negotiate equitable terms and conditions for doing business with them.
 
Once you have a clear understanding of your customer's requirements and expectations, you should bring these requirements back into your organization and compare them to the internal capabilities of the company. The goal is to match the capabilities of your company with the needs and requirements of the customer. This is typically done via a gap analysis or feasibility study. Any gaps between customer expectations and organizational capabilities should be discussed internally within company walls to decide if and how to close these gaps. You may not be able to close all of the gaps identified without changes to your current business processes or a significant investment. These gaps then become the basis of a follow-up meeting with the customer. Ultimately, you do not want to commit to expectations that you are not capable of fulfilling.

Once you have committed to fulfilling customer requirements, you then should prepare your organization to meet the requirements. This is often referred to as Advanced Quality Planning and/or Quality Function Deployment. Depending upon the level of vertical integration of an organization, this might involve identifying, researching and selecting outside suppliers to the organization. Only now the role is reversed and you are the customer. Likewise, you need to be able to clearly communicate your needs and expectations to potential suppliers. When selecting supplier partners, you should be interested in organizations that have the capability to fulfill requirements and act as a seamless extension of your company by complementing what you already do. The direction, company culture and way of doing business are all important characteristics to consider in addition to technical expertise when selecting supplier partners. The terms and conditions established with your supplier partners should reflect the requirements and expectations of your customers.

In today's business world, very few organizations do everything themselves and as a result are very reliant on their supply chain. This is true for manufacturing companies as well as service providers. Today, supply chain management is one of the most critical aspects of conducting business successfully. So, in essence, you are attempting to form a seamless chain of process steps starting with your customer and working back into your organization, extending to supplier partners.

The supplier/customer chain and the linkage of inputs and outputs of each process step is the essence of the ISO TS 16949:2002 Quality Management System Standard. This is the true extended value stream and is often compared to running a relay race. The objective is to develop smooth, efficient and effective hand-offs between each process step in the extended value stream while maintaining forward momentum through the finish line with the least amount of disruption. This is lean enterprise thinking. Negotiating complementary terms and conditions with the customer as well as supplier partners is essential to establishing a suitable and stable foundation for business success.