THIS week in our cost-of-living campaign with NatWest we explore how taking a look at your supply network and negotiating new terms may help your business get a better deal.

With supply chains under pressure the cost of doing business is soaring for SMEs. These practical tips could mitigate against those rising costs.

1. Review your current suppliers:

• Establish who your most important suppliers are

• Analyse your current pricing

• Set cost targets for each supplier.

The prices and performance of your suppliers is the first step in deciding whether you should make changes. Inflationary pressures are affecting suppliers too so be realistic about possible savings in the current climate.

Costs could be higher – and may rise more quickly – if suppliers are in geographies that are more vulnerable to geopolitical risk, so understanding where there’s potential to near-shore or ‘friend-shore’ can help frame negotiations.

2. Understand the market:

• Are your suppliers’ prices competitive?

• How many alternative suppliers and materials are out there?

• Are materials prices likely to rise again?

Do your homework before starting negotiations. Find out if an increase in the cost of raw materials has forced your supplier to raise prices. Also, do research on the number of suppliers offering a particular product. This could add leverage.

3. Make a plan:

• Know what you want to pay and arm yourself with figures

• How will changes will affect you

• Consider contract amendments. How much do you ideally want to spend with each supplier? Set savings targets. Your discussion with your current supplier is more likely to be successful if you have a clear agenda. For instance, they may agree to lower pricing with a locked in price if you agree to extend your contract term, which will benefit your business in the short term and the supplier in the longer term.

4. Negotiate with confidence:

• Remind the supplier you’re a good customer

• Ask for more than you expect to get

• Offer cash upfront for discounts.

When it comes to negotiating with your supplier, don’t be afraid to request a deal more favourable than what you may finally expect to agree to. If you can afford to do so, be prepared to offer cash upfront in return for a discount.

During negotiations, be polite and respectful of the fact that your supplier is also a business owner and has to pay attention to their bottom line too. If possible, have your supplier commit to a locked-in price over a set time period to improve your margins.

5. Shop around:

• Don’t accept the first offer

• Find suppliers outside your region

• Don’t underestimate goodwill.

A supplier may pressure you to commit to an offer immediately, but don’t be afraid to speak to competing suppliers to find out if there might be a better deal out there. Look outside your local area; companies in other regions may be able to offer a better price and might include shipping costs. You should also think carefully before switching suppliers and losing the goodwill you’ve built up.

6. Proactively manage risks:

• Embrace resilience-first

• Review supply chain management systems

• Enhance transparency and visibility.

Risk management is an ongoing process and there are things you can do to bolster the resilience of your supply chain long term. Investing in supply chain management systems could improve supplier transparency and highlight vulnerabilities, particularly in the face of new disruptions.

Next week we look at how you can relieve financial stress and improve the wellbeing of your staff.