Hardly a day passes when shop or fleet managers aren't reminded by senior management that equipment costs and risks must be reduced. Yet, few fleet professionals ever take advantage of the easiest way to do this: sitting at the negotiating table with suppliers.
Of course, not many fleet professionals ever sit at that table. The reasons vary, but they often are rooted in the simple fact that too many equipment professionals don't know how to negotiate. Negotiating is not a God-given talent of birth. It is a skill that must be learned.
One of the first steps in learning how to maneuver through the maze of negotiations is realizing that there are certain "power documents" that will result in good-to-excellent reduction of costs and risks, if used consistently.
Robert Andrade, CEM, identifies seven power documents. Andrade is vice president, equipment asset management for Pasadena, Calif.-based Parsons.
1 Have an ROI (return on investment) worksheet for your assets that weighs what your individual organization requirements are for rate of return. This should be conveyed to your suppliers so they know how they fit into your business planning, says Andrade. "This shows them where their shortfalls are and what they can do to better fit your model," he says. "If they can't do better on price, then maybe they can do better on value-added features that will improve their ranking on your model."
2 Provide documents or records that clearly show that you have a strong, established relationship with preferred suppliers. "Suppliers need to know that you're not going to burn them on warranty issues or become adversarial," Andrade says. "You have to be flexible. Otherwise, you will kill the goose that lays the golden egg."
The supplier wants to know that you're on top of your game and that you are managing your operating costs, he says. This historical track record is increasingly important as you deal with warranty situations with them.
"They don't want to hear that you blew a transmission," says Andrade. "They want to see your work orders. They want to see documentation that supports your claim. You should be able to simply pull out such documentation from your paper work files or, if you're computerized, from electronic files. If you show them you're working through the problem with them, that you know what you're talking about and you're not just shooting from the hip, suppliers are very flexible.
"You've got to give them a hammer to go back to the manufacturer with," he says. "Otherwise, it's just hearsay. It's like a legal case. Either you have it documented, or you don't."
Presenting such documentation is easier for larger companies, but even smaller businesses can achieve the same results if they make use of good maintenance software packages that are designed specifically for small shops. Andrade suggests talking with colleagues or asking industry associations for guidance.
3 Create a spreadsheet of questions, product specifications, and other criteria that help you determine what the pluses and minuses are. "Do your homework," Andrade says. "Go to the product manufacturer's website for information, read the product manual to find out what the product is supposed to do, study the characteristics of the machine or component, then move on to the next manufacturer."
Once you have that information, he says, try to determine where they fit into the marketplace. Are they a leading supplier or lower-tier supplier? Compare them to the competition. "I talk to people in associations that I belong to and I talk to the suppliers themselves," Andrade says. "I'll also talk to two leading competitors. From that product and technical information, I draw up a list of questions and specifications."
What the fleet manager is aiming for, Andrade says, is to know as much as, and preferably more than, the supplier's representative in the meeting. "Sometimes I already know the answer to a question, but I'll ask it anyway just to find out if the sales rep knows the answer.
"I don't talk to salespeople who don't know their product," he says. "As soon as they don't know the answer, I disqualify the salesman completely."
4 From the spreadsheet mentioned previously, compose a list of questions showing your analysis of the supplier's product or machine versus the competitors. If they don't get the sale (and salespeople always contact you to see if they got the sale, he says) convey to them what their shortfalls are. This is one way to show that your reputation and business ethics are everything. "You'll never negotiate the best pricing and terms if your word is not your bond," he says.
By telling them, for instance, why their machine didn't measure up with the competitor's, you build strong relationships, says Andrade. "I have some very good relationships with some suppliers from whom I never buy their machines in a particular range," he says. "They understand why, and they understand that the competitor's product was better than theirs. They know why,or should."
Andrade says suppliers appreciate the candor because they are given a fair shot and a fair answer. "Too many times, equipment guys don't give them a fair answer and that's not ethical, in my opinion," he says. "You have to let them know why they failed so they can improve their product, or try to make sure they meet your expectations the next time around. A lot don't do that."
5 Document the fact that all suppliers are on a level playing field. "It's unfair to make suppliers step up to a certain level, such as providing a service or some type of product support, free oil changes, free oil analysis or warranty, and not hold them to it," says Andrade. "If you don't make them deliver, you're being unfair to yourself on a cost basis and unfair to the supplier by eliminating something you're not holding them to. You have to be the one who authorizes payment terms, rental terms or whatever it is.
"Otherwise," he says, "it takes away from the reputation of your company and the way you do business. If you don't do this, some suppliers feel you are holding them to a higher standard than you are their competitors."
6 Make sure you have a well-written bid contract for annual and major negotiations. Clear bid formulas are helpful and narrow the field, says Andrade. Sometimes, however, working relationships and product support should outweigh the formulas. "Organizations that will cover you at all hours of the day and night should always be given preference over the formulas," he says.
With that in mind, bid contracts should clearly define the services that you want, and specifications should be detailed to the level that everybody is bidding the same attachments, the same options. Everybody should have an apple-for-apple quotation.
"So many times when you get quotations on a machine, managers take a generic description and don't weigh the options or limitations of the product," Andrade says. "Just saying you want a three-year warranty isn't enough. The content of one warranty isn't necessarily the same as another warranty. One manufacturer might say a three-year warranty covers only hydraulics. Manufacturers all define warranty differently."
The only way a fleet manager can know exactly what he's getting is to define (in this example) a three-year warranty. "Be specific," Andrade says. "Say I want a three-year warranty that covers the power train for 5,000 hours and I also want hydraulics covered. Specify what your parts availability is: 'I want 90 percent parts stocking availability on a 24-hour basis.'"
Sometimes, manufacturers will offer a lot of product support and service in generic terms when they're bidding against someone else, Andrade says. "So you really need to define what you want as far as product support and warranty is concerned."
If you do obtain apple-to-apple bid quotations, your final decision could "circle around many things, depending on where you are working," he says. If you are on a project out in the wilds of Colorado, you might focus on the issue of product support because if your machine goes down you are out of business, says Andrade. If you're in downtown Seattle or New York City, your focus might be on price.
"There are many areas where you have to be flexible, depending on such things as application and production requirements," Andrade says.
7 Make use of your pricing files and vendor histories. "If you bought a machine years ago and the supplier said he was going to do all these wonderful things and he fell on his face — couldn't get the parts there, wouldn't honor a warranty, didn't respond 24/7 — then obviously the next time you're up for a major bid or annual negotiation, that vendor history should red-flag you," says Andrade. "They didn't deliver."
At the end of the day, says Andrade, fleet professionals should make use of these seven power documents to be fair with all suppliers. "Everybody should be on an equal footing and everybody should have a shot," he says. "Too many times favoritism, or things like that, enter the picture and they shouldn't. It's really not fair to other suppliers."