CIPS L4M5 - Commercial Negotiation

Persistent late payment of the supplier’s invoices (A) and Unequal sharing of gains, risks, and costs with the supplier (B) are potential sources of conflict as they create dissatisfaction and imbalance in the relationship. According to CIPS materials:

Late payments (A) can strain the supplier’s cash flow, affecting their operational stability and leading to mistrust in the buyer.

Unequal sharing of gains, risks, and costs (B) can result in one party feeling exploited or unfairly treated, which undermines the collaborative spirit essential for long-term partnerships.

In contrast, requesting early supplier involvement, planning visits, or setting delivery dates are typically part of constructive relationship management practices and do not inherently lead to conflict.

Buying organisation may increase its leverage with suppliers by concentrating spend. Supplier spend consolidation can take many forms as outlined below:

Vendor base reduction: straightforward reduction of number of suppliers in any category

Volume pooling: pooling cross organisational requirement until your order volume is high enough to attract new bidders/additional discounts

Volume redistribution: making recommendations following spend analysis to move from one supplier to another

Volume consolidation across categories: certain purchase requirements may be common across a number of categories

Standardisation and harmonisation of specifications: analysis of specifications and standards for a high spend purchased input, may show that there is a little difference between them and that the specification can be standardised or at least harmonised across the group or across national, regional or global operations.

Forming purchasing consortia: buyers may decide to come together and combine their purchase volumes to attract better deals.

Direct costs are those costs of a product/service directly attributable/traceable to its production. Examples of direct costs including the following:

Materials and services bought-in: In steel manufacturer, raw materials are iron ores, scrap metal, coals, etc

Labour or wages: money paid to staff for the work involved in producing the product.

Other expenses: other charges incurred that can be specifically attributed to a particular product, batch or service