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Last week, we left our hapless suppliers attempting to defend their overhead costs. They had been asked questions designed to be embarrassing and did the best they could to maintain their cool and answer the questions politely. The potential buyer is smug--he has them on the ropes.
Not so fast. There are plenty of arrows left in the sellers' quiver, so to speak. Even when there are two or three offerings on the table, sellers can still maintain their operating margins if they play the game correctly.
The first place is in price. If the buyer insists on a certain price in order for the supplier to be competitive, the supplier can play with the terms to some degree. Move payments forward, split up the payments in a different way than was originally proposed. Not only will this improve the supplier's cash flow on the project, it will tell suppliers a lot about where they stand vis-à-vis the competition. If the buyer accepts these movements without much fuss, good news--this supplier is the favored supplier. This means this supplier has more negotiating strength.
Suppliers can do other things to enhance their positions, too. Perhaps there is a feature or service they know the prospective buyer will want. They can leave it out of the original quote or offer a much-diminished version of it. If buyers are not sharp, they will miss this the first, and perhaps the second time around, and then the supplier can make up for other concessions when buyers convince themselves they must have the missing piece. The longer suppliers can keep this off the table, the more they can get for it. Succeed in keeping it off the table until the main contract is signed and the down payment received, and the cost for this desired item can go through the roof.
Another way to create an advantageous condition for a supplier is to have a new feature or service that is kept in abeyance until well into negotiations or even beyond. If suppliers can hold out with a new feature that is a surprise and is desirable late in the game, they can get their price for it. Don't bring new features up early if the prospective buyer is already showing great interest--that is what an excellent old timer salesperson once characterized for me as "spilling your candy in the lobby."
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Jim Thompson is back again...with a new book on a taboo subject: the personalities in the pulp & paper industry. Jim has written in the past on many subjects based on his four plus decades in the worldwide pulp and paper industry. This new book is packed full of information valuable to the senior member of the industry as well as the recent entrant. A must for every pulp and paper library.
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There has been a project manager running around our industry for a number of years who thinks he is very clever. He sits down to negotiate on behalf of his clients (mills) with full knowledge that the bid specification he has put in front of the suppliers is incomplete. His stated strategy is to negotiate to this specification, then once a purchase order is signed, beat up the suppliers to give him the rest of the stuff necessary to make their equipment work. Of course, you and I know this is a very small industry; he has been outed (by others). I am just reporting in past tense here, and the game is up, I think.
Another rumored technique of the past decade, unconfirmed, is for suppliers to slightly undersize their equipment to get the order, then hope to negotiate liquidated damages at the end to their advantage. I hope this is not occurring, but in some cases, it would not surprise me.
The moral of this story is the one you learned the last time and every time you bought an automobile. In the case of the auto purchaser, your worthy adversary, the car dealer, does this for a living while you do it once every few years. Without doing your homework, you as a buyer are going to lose every time. The same thing applies to procuring equipment and services in a pulp and paper mill. Yes, you may buy things all the time, but in a particular tiny sector of your purchasing realm, the sellers are holding all the good cards. Get too cute with them, and they will skin you alive.
I pray for the day when everyone on all sides of the table acts honorably. I doubt my prayers will be answered.
For safety this week, I am emphasizing that it is unwise to negotiate with the ambulance driver. Get your safety act together well in advance on every front and procure what you need long before you need it. And hope your training and awareness program manifests itself in your never needing it.
Be safe and we will talk next week.
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EMPLOYMENT OPPORTUNITIES:
* We are looking for a Production Shift Team Leader to maintain high standards, plus ensure safety policies and regulations for a company located close to Chicago's Midway Airport. If you are experienced team leader who has a four-year degree in an engineering/technical field (paper science degree preferred, and experience in recycled linerboard or corrugating medium paper mills is a plus), we are looking for someone like you! If you are interested or would like more information, please contact Jim Thompson at: jthompson@taii.com Ph. 678-206-6010 Cell: 404-822-3412.
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* An expanding company is looking for a Corporate Industrial Electro-Mechanical Engineer near Allentown, PA. Relocation is available. Do you have a storied list of unique electrical and mechanical engineering skills you're ready to take to the next level? Do you envision yourself in a corporate-level leadership role that your experience finally merits? And do you relish any opportunity to troubleshoot and solve real-time problems, all while designing and installing new services and systems that will not only ensure safety, but also turn a potentially hazardous work environment into a continuously thriving one? If you are interested or would like more information, please contact Jim Thompson at: jthompson@taii.com Ph. 678-206-6010 Cell: 404-822-3412.
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