BUILDER asked several industry professionals how builders can boost their bottom line in purchasing negotiations.
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Facing skyrocketing material prices, builders across the country are looking for ways to keep costs in line. Many see price negotiations with suppliers as a way to decrease expenses and increase profits.

While working with suppliers can definitely lower costs, industry experts say that it’s important not to lose sight of long-term considerations, such as the benefits of a continued relationship with a supplier. BUILDER asked several industry professionals how builders can boost their bottom line in purchasing negotiations. Every negotiator has strong-arm and low-ball tactics in their arsenal, but backing a supplier into the corner is not the best approach, according to these salesmen and consultants. Here are their tips for achieving long-term, win-win relationships in purchasing negotiations.

Negotiate with Integrity

Home builders and suppliers face their fair share of market challenges, and these pressures can weigh down negotiations. Matt Collins, senior consultant at Builder Partnerships, says that purchasing teams sometimes compromise on integrity while going after expedient solutions to their objectives.

“The purchasing team needs to operate at an elevated level of integrity and above reproach,” he says. “Taking one supplier’s pricing and passing it along, or telling another supplier the price they need to beat, are examples of short-sighted tactics that may win you a few bucks initially but then contribute to a reputation of someone that can’t be trusted with aggressive numbers.”

Purchasing professionals and consultants offer tips on achieving long-term, mutually beneficial relationships with suppliers.
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Sales professional John Palumbo recently authored Highly Influential, which profiles a top-notch class of negotiators who let their character speak for itself and arrive at favorable outcomes without having to push people to buy. “Highly influential professionals have a charm and charisma about them -- people want to do business with them,” he says. They can persuade customers to spend money with them without resorting to dishonest tactics, he adds, “through a good relationship, through good building of trust, and through [the customer’s] confidence in them.”

Think Long-Term

Instead of focusing only on the present negotiation, builders and suppliers should consider “the long-term good that can come from the two companies being in business together,” says Collins. “We want to see that once an agreement has been finalized, both companies can agree that they are better off because of the agreement.” Companies who can come to mutually beneficial agreements are likely to keep doing business together, which helps to cut down on risk and uncertainty for both sides regarding future transactions.

Mark Woolley, president and CEO of construction education firm Buildtec Solutions, says that builders and suppliers who maintain trusting relationships are better equipped to adapt to industry changes with minimal impact to their bottom line. “Suppliers are watching the cost of the raw goods, and unless the two are talking, most builders aren’t watching as close as they need to the overall material cost until it blindsides them,” he explains. “Yet, most of the suppliers I’ve worked with are more than glad to communicate that so you can adjust your prices accordingly and be moving forward.”

Further, some suppliers are willing to bump loyal builders to more competitive price tiers, Woolley says. While volume is still a consideration, builders who are reliable and communicative can be rewarded with the same pricing as larger builders. “Strong relationships help to level the playing field, particularly for small- to mid-sized builders,” he says. “I have yet to meet a successful builder who hasn’t learned that.”

Communicate Often

Builders and suppliers who value each other’s business relationship are more likely to communicate openly and with regard to the other party’s interests.
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Woolley conducted a survey of builders and suppliers in his network to learn what matters most to each side in negotiations. “Relationship” ranked as the most important consideration for both builders and suppliers, he found, while “communication” ranked second for suppliers and third for builders.

According to Woolley, builders and suppliers who value each other’s business relationship are more likely to communicate openly and with regard to the other party’s interests. With the understanding that price increases are sometimes unavoidable and non-negotiable, builders want to be informed of future increases and potential shortages as far ahead of time as possible, Woolley says. Likewise, “suppliers want to make sure that there is transparency, that they know what to expect from the builder, and that if there are going to be changes, there will be open communication and dialogue on an ongoing basis to minimize the impact to both parties,” he explains.

Stick to Schedule

Timelines were among the top concerns for builders and suppliers that Woolley surveyed. Receiving product on schedule was the second most important factor for builders, he found, while timely pay was the fourth priority for suppliers. Just as builders expect their product to be delivered to a jobsite in a timely manner, suppliers expect to be paid for that product within their 30-day deadline, if not well ahead of it, Woolley says. As an added incentive, some suppliers will throw in a discount or tier upgrade in exchange for prompt pay.

“It is said that you cannot have a true win-win result until you understand what the other side’s desires, needs, and alternatives are,” says Collins. “This takes preparation, effort, and listening skills, and the key word there is ‘skills’ -- negotiating with excellence isn’t natural but it is something that can be learned and sharpened.”