Vendors, Risk and Solutions

Many vendors who realize they are your single source will use that fact to extract a higher price or to put you in a position in which your negotiating leverage is minimal.

What are some of the tools you can use to minimize this risk? Here are a few tips:

“Keep vendors on their toes.” 

What To Do and Not To Do

• Create a  Bidding Process. Conduct a bidding process and communicate to your vendors that you will be considering their bid against other bids. The bidding process can be formal or informal. Communicating that you are accepting proposals from multiple vendors will cause vendors to act accordingly.

• Be  Careful Sharing Information. When your mind is full and you build a relationship with constituents like vendors, you tend to share the gory details of your business. While this can let air out of your balloon, this can also be detrimental to the business. When vendors hear a sense of desperation or a risk to your business, or know there is a customer deliverable in two months, some may use this information to alter pricing and terms or use this leverage to create relationships that are not balanced. Vendors should earn your trust by performing. At that future time, you can share more with them.

• Have  Alternatives.  Even when you hire vendors, make them aware that you are constantly looking for ways to improve and always keep alternative vendors on call. It is like having a bench when it comes to employees. This keeps vendors on their toes.