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The question itself needs a clarification on what kind of purchase you do. Getting a better discount depends on following criteria :
a) Supply market – Monopolistic, Oligopoly, Imperfect and perfect competition
b) The nature of the product – Leveraging, strategic, bottleneck or non-critical items
c) Spot purchase, re-buy, modified re-buy or new buy
I would suggest following action to get best discounted price on purchase:
Supply market study; analyze the micro and macro environment changes in the supply market and local & international supplier identification
A strategic or bottleneck item cannot be discussed based on discount; it should require a strategic alliance or collaboration.
Common practice for procurement are :
a) Reverse auction : This is very best for non-critical and leverage items
b) RFQ – Request for quotation is the standard procedure for getting supplier price. Get more RFQs from supplier and evaluate on purchase criteria
c) Tendering: Decide what kind of tendering you wish to run. Open or restricted. Open will allow you have more supplier participation but restricted or ‘closed’ tendering allows participating only the selected based on pre-evaluation criteria. This is very best for capital purchase rather than a non-critical one. Always be conscious that the ‘process of purchase’ took for getting discount should not cost more than what are the expected benefits!
d) Post Tender Negotiation : This will help you to achieve additional ‘add-on'
e) RFP – Request for proposal. This is a request for suppliers offering, evaluate it with our purchase material specification.
f) Re-buy or modified re-buy – Volume of purchase will help you to negotiate further and get better discount because you are aware about the current pricing already.
Detailed information are already given by Mr. David Davies
Competitive Bidding is the most common method of procurement at lowest possible prices , given a specific quality of the material concerned. Alternatively, one may go for negotiated tendering to get maximum possible discount.
for projects the materials must be approved from consultant or the owner first then evaluation will be in price & delivery time margin , for stock evaluation will be in price & delivery time margin only
Hello,
I agree with most of the answers and comments raised by my colleagues, and probably you may set a reasonable target price (based on market analysis) then you can negotiate with your suppliers and this depends on various factors type of material, delivery, ... etc
Best Regards
Competitive bidding is the most common method to get the price prevailing in the market. upon reviewing and comparing all the offers received from the suppliers, you can negotiate in a better way and may get a high discount. Other factors such as payment terms, delivery period, quality of the product, etc. can also contribute in getting the best discount.
Competitive Bidding will enable us to challenge the price of one vendor with another. In this way, we may fetch a better discounted price. Another way is to be lenient in payment terms in order to get a discounted price.
I see three common methods:
1) Bulk purchasing – we are as procurement team have a good opportunity to get discount during purchasing of high quantity of the materials;
2) Long term contract - any vendor who has a stock is able to provide with good discount during signing of long term contract;
3) Negotiation – the one most popular method of getting discount.
From my experience, I can list the following methods to get discounted price :
- Competitive Bidding in all its types (Open/Restricted-sealed- etc.)
- Negotiation with selected vendors (using Saw method which is not recommended with strategic vendors)
- Volume Purchases where price will go down with increased quantity allocated
- Long Terms Agreements which will enable vendor to control his cost based on long commitment from client
- Rebate Option where you agree to get more discount based on quantity limit or value limit.
- Payment Terms (Cash- Shorter Terms - Currency of Origin etc.) but make sure that discount obtained is encouraging compared to the payment terms.
- Diversifying/extending the business with vendor to cover other products
In summery, your ability to be creative and effective in negotiation to acquire you need, will enable you to get more discount than you desire provided being honest and committed.
You can buy all items on discounted price if you delay delivery, if you decide to pay in cash or cash in advance.
You can also take prices down if you buy in bulk, Negotiation is the best practice to achieve these targets.
Hello Thuraya. How are you doing?
straight answer: there are many methods and several combinations of them.
first at all a procurement department must have already developed a data base for recommended suppliers(evaluated positively at the final stage of procurement-contract close.
1- use the best of your suppliers;
2- address your request to those who have a lower overheads and offered you early a special discount;
3- work on a competitive basis. launch a tender and do not exaggerate with your administrative requirements (do not skip the procurement risk management);
4- propose an advance payment that may encourage the supplier to provide you with a special discount (against bank guarantee );
5- in the case of an estimated high cost procurement, use the procurement as an opportunity and create first a short term partnership then after the contract closing evaluate and get lessons then if ok go for long tem partnership.
6- study the market and define, evaluate and select your product needed quality and specifications.
7- bartering for exchange with one or more of your products
8- go to negociation after developing your SWOT method and you will get a remarkable results.
9- a combination of all or a part of these methods;
- there must be other methods...use your creativity and experience to get the discount you wish.
Procurement in discounted prices:
1. Identify proper vendors for the material supply.
3. Get better lead time from end user for procurement.
3.By getting more quotations (minimum 3 ) and negotiate with the vendor.
