17 March 2011 | Adviser Q&A
We are about to enter negotiations with a monopoly supplier. Can you suggest any ways in which we could win better terms?
Buyer, Bulawayo, Zimbabwe
Iain Stewart, director, 105 Consulting
Do you want to get a better deal from your monopoly supplier? Or do you want to know how to break the monopoly? Work out which it is and establish your organisation’s appetite for the fight ahead.
Next, check that you really need this product or service. If so, getting a better deal should be straightforward. Answers might include bundling demand, placing orders at slack times for the supplier, piggy-backing on another customer’s volume – living within your difficult situation.
Breaking the monopoly is much harder. Start by building internal support among stakeholders for the road ahead, and by making sure your immediate needs are covered in case your plan backfires or the supplier retaliates. Then establish why this is a monopoly, how it could be changed and what options exist to make you a more important customer in the market place. This could be as easy as adjusting your specification, or more complex, such as developing a new supplier or changing your finished product. Keep your colleagues on board all the way.
Geoff Ibbotson, head of device operations, Everything Everywhere
True monopolies are rare – some level of substitute usually exists, so research all the options.
Even monopolistic suppliers want to sell as much product (within commercial reason and supply constraints) as possible and there’s usually a deal to be had.
You could take a collaborative stance, trying to achieve longer-term opportunities/repeat buys, relationships and incremental benefits for the vendor. Advance orders guaranteeing future cash flow, bulk purchases maximising production efficiencies or low-season transactions are also potential angles. A monopoly supplier may also have higher margins and be more open to discounting or offer to match prices available on the grey market. A complacent supplier unaware of product criticality may take a weaker commercial position than
it should.
The purchaser must maximise the perceived opportunity represented by their business to the supplier while minimising their apparent dependence.
Tony Fish, principal consultant, PA Consulting
The short answer is ‘with difficulty’. Think about the strength of your existing relationship, the significance of the goods or services being supplied – would there be negative consequences if you apply more pressure? – and their complexity. This informs not only the tactics but also the vigour with which negotiations can be pursued.
The need to be informed is never truer than when dealing with a monopoly supplier. As well as your contract, you should have knowledge of market trends, any bad press and reports on the supplier’s financial performance.
If prices are inflexible, identify where improvements to the service will provide most benefit that won’t impact costs. These are often easy for the supplier to offer and enable it to test out services it wants to develop. If you are unconcerned with making the relationship worse, a further option is to attack the supplier’s value chain, identifying costs that relate to a part of their service which you do not recognise as valuable. But beware the dangers of this.
Key Facts
1. Ask yourself, do you need the product or service?
2. Consider adjustments to your finished product
3. Identify improvements to the service which won’t cost anything
4. Build knowledge about the supplier
Send your questions to:
adviser@supply
management.com
Please note: Responses can only be given on this page, represent writers’ personal views and should be regarded as general guidance only.
