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Aerospace BizDev News from Linda Wolstencroft
Newsletter #49 –
July 15th, 2015

Linda Wolstencroft’s monthly Newsletter offers business leaders insights on business growth in complex situations.

Negotiating with Powerful Suppliers

If Canada’s selection for the CF-18 replacement is conducted on a justified sole source basis and Lockheed Martin’s F-35 Lightning II is chosen, then Canada will face the challenge of negotiating from a weak position.

Every day, business-to-business deals where the supplier has more power than the purchaser means these powerful suppliers will take advantage of their weaker customers if not held in abeyance.

Governments, operators of major equipment (airlines, shipping lines, etc.), OEMs, as well as non-OEM businesses that are in the top tiers of the purchasing chain often face this.

If you find yourself in this situation, consider the following:

The first mitigation is competition. Don’t get too far along in making a deal without having a plan “B.” A powerful supplier can make attractive promises early in the relationship that don’t come out exactly as advertised in the end. Therefore, it is important to make sure you are not left without any options.

If competition is not feasible, another mitigation is to find value for your powerful supplier that is outside of the scope of the primary deal. This could include:

  • Access to new markets / new customers: Bring your powerful supplier in on other business in exchange for fair concessions.
  • Increased volume: Determine what else you can buy from the powerful supplier in other areas of your business.
  • Long-term business options: Plan future new business that you can work on together.

Yet another mitigation to be prepared for is to take value away from your powerful supplier (if you are in the position to do so). For example, if you have current business with that supplier, consider competitive options for that business. For your powerful supplier, a fair deal on the new business can be tied to business continuation on existing business.

When there is no viable competitor, consider developing one. This is not possible in all cases, but in some there are suppliers that are outside of your traditional market area that you can bring in. For example, develop an overseas supplier into a viable competitor to your powerful domestic supplier. Or, take on the product/service yourself through an acquisition, merger or simply an alliance.

Finally, powerful suppliers that behave badly in negotiations can only push their customers so far. At some point - and as a last resort - cancellation, or even legal action, can become a real option.

I can help you find the way through a situation in which your supplier is more powerful than you; contact me anytime.

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LINDA WOLSTENCROFT recognized for her professional contribution to aerospace in Canada.

Click here to read the details and a Q&A with Linda.

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