3 Tips to Build Supplier Negotiation Strategies for Incumbent Suppliers

In many industries, including insurance and financial services, companies rely on long-term, strategic suppliers that play a critical role in their operations. These suppliers, often considered "core" partners, have built deep relationships with the business over many years—sometimes spanning two decades or more. Procurement teams often need to play an intricate balancing act when there is a need to either renew contracts or adjust their terms. They have a need for competitive pricing as well as value, on the other hand, a need to preserve supplier relations that have delivered the business successful results. Rather than immediately jumping to competitive bidding, which often can create tension between those parties, a strategic approach to negotiations with incumbent suppliers may present an effective alternative. The strategy helps procurement teams win favorable terms but without having to compromise their relationships with the partners driving business growth.

Align closer to stake holders and business partners when devising an incumbent supplier negotiation strategies for contracts. A good incumbent supplier negotiation strategy will work towards the supplier's capacity to innovate and keep reasonable prices. To effectively enforce this strategy, procurement is responsible to access existing market conditions, analyze their current pricing structures, probe for new innovations, and align with stakeholder's priorities. Here are the three main components that any organization needs to consider and implement to build a highly successful incumbent supplier negotiation best practices in strategies.

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Perform Market Assessment  

The first step in developing an incumbent negotiation strategy is conducting a thorough market assessment. The goal of this process is to gather relevant information about the supplier landscape, including the pricing and services offered by competitors and new entrants to the market.

A thorough market analysis integrates internal data like the agreements already in place with other suppliers that are providing similar services, while it also integrates external insight. External research firms or industry analysts can give the necessary insights into the prevailing market trends and pricing models. A holistic and objective market analysis will make the procurement team stay ahead of the competition while creating credibility with stakeholders and incumbent suppliers.

Supplier complacency is a significant risk in not running a competitive bid. Suppliers who have long-standing relationships with clients become less motivated to innovate or develop new capabilities. To avoid this, procurement must gather intelligence about the supplier's industry and competitors.

Instead of relying on a formalized bidding process, procurement must look into what other suppliers are doing to drive innovations and whether the incumbent is investing in similar advancements.

Researching the right or wrong competitors is crucial as it will ensure that the comparison is meaningful and not irrelevant. Close interaction with stakeholders is important because it will enable the procuring organization to understand more about the specific services bought and how they impact on the business. This means that the research insights are directly applicable to the supplier negotiation. 

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Collect Client Feedback  

Client feedback is another critical input to an incumbent supplier negotiation strategy. By engaging stakeholders and getting feedback on both qualitative and quantitative factors, procurement teams can gain valuable insights into the supplier's performance.  

Qualitative feedback includes:

- Is the supplier responsive to requests?  

- Does the supplier offer new ideas to address challenges?  

- Is the supplier invested in the company’s growth?  

- Are there any issues with the quality of products or services delivered?  

Quantitative feedback focuses on measurable factors like:  

- Does the supplier bill at the agreed-upon rate?

- Is the supplier meeting deadlines and timelines?

- Are invoices correct and in accordance with the contract terms?

Once the required data is ascertained, procurement teams should work with stakeholders in reviewing the findings and designing a negotiation plan. Be prepared to push back your requests with the data so that suppliers will not just accept your requests. By leading the negotiation of well-supported arguments, the procurement can protect the supplier relationship with stakeholders while it gets the best possible terms.

This means, for instance that competitive tendering is something most agencies use to establish price competitiveness and comprehensive offers. On the other hand, with well-researched incumbent negotiation, competitive results could be achieved at the best with minimum supplier risks. Procurement teams that apply a judicious approach, supported by data and analytics, get to enhance their reputation, having gained better understanding on supplier relationship nuances. A balanced solution to both the procurement objectives and business objective leads towards long-term success.

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