Good Cop, Bad Cop
By: Stephen Machin, CMA

One of the biggest challenges that purchasers face is balancing the tough-negotiator role with the supplier-relations role.  One solution to this problem is to create a good cop bad cop approach to bring costs down.

Global competition makes for tough times.  Most costs are rising but selling prices are not.  In fact, in some cases prices are dropping due to cheaper imports from China .  The result is pretty simple: profits are being squeezed. Therefore, finding ways to drive costs lower than your competition’s has become more important than ever.

Here is an approach to supplier negotiations that might give you a leg up.

The Purchaser’s Conundrum

Imagine phoning a parts supplier on Friday to coax him into running an unscheduled weekend shift; then on Monday asking for a better price.  This is the situation that many Purchasers find themselves in on a regular basis.  It is very difficult to be the tough negotiator one day and then asking for special assistance the next.  It's easy to see how the two roles conflict.  Suppliers are very aware of this dynamic and use it to their advantage at every opportunity.  Usually when you ask for a price reduction they put their arm around your shoulder and recount the times that they have bailed you out at the last minute.  While you count on your suppliers to be there for you in your time of need you also expect to pay a fair price for their product or service.  

Try a Tag Team Approach

Enlist your Finance colleagues lend a hand and form a tag-team with your Controller. Let the Controller play bad cop, while you are the understanding working partner.

Here's how this strategy works.  Let’s use steel cans as an example. Suppose your can supplier has been doing a good job and is asking for a modest 2% increase for next year.  Your Controller enters the picture saying Forget the increase – I want next year’s can budget cut by 4%.  He has information that steel prices are down over 8%, and estimates that about half the value of a can is in the steel itself.  He sends you a memo indicating that 4% price reduction is fair and is the only result the company will accept.

You are up next and deliver the bad news to the sales rep along with a copy of the Controller’s memo, adding that it's hard to argue with his logic. You might even suggest that is there is anything that the Controller has not taken into account that you will take it back to him for further discussion.