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Business Cost Reduction Strategies: Win-Win Supplier Relationships

Win-Win Supplier RelationshipsSome businesses are concerned that conducting a business cost reduction analysis might damage their relationships with existing suppliers. I too value loyalty in mutually beneficial long-term business relationships and have found that it is indeed possible to cut costs while strengthening relationships with trusted suppliers.

To seek rate reductions from current providers, you must do so in a positive, win-win manner. Here are three thought-provoking cost cutting ideas that can strengthen your supplier relationships:

  1. If you pay supplier invoices with a business credit card, offer to pay with cash or check in exchange for a % discount on each invoice. This benefits you by immediately lowering your costs and benefits the supplier by eliminating the credit card processing fees that the supplier would have paid otherwise. Note -- to be win-win, the % discount must be less than the supplier’s credit card processing fee expense. That way the supplier experiences cost savings as well.

  2. If you purchase a consistent amount of products or services from a supplier, consider establishing a minimum purchase commitment with the supplier in exchange for a discount on any purchases made above the minimum purchase commitment. This benefits you by reducing your marginal costs for purchases above the minimum and benefits the supplier by guaranteeing a certain amount of revenue. The supplier also benefits by earning incremental revenue on any purchases you make above the minimum.

  3. If you have significant confidence in your relationship with a supplier, consider negotiating a discount in exchange for signing a longer than normal contract (e.g., 4-year versus 3-year), or by extending the term of a current contract beyond its current expiration date.

Expense reduction analysis doesn’t need to be an adversarial process. Instead, use it as an opportunity to think creatively and collaborate with your trusted suppliers to everyone’s benefit. If you would like assistance in accomplishing this, think Simple. Schedule a free conversation with our expense reduction consulting firm.

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