How to Negotiate with Powerful Suppliers

In many industries the balance of power has shifted from buyers to suppliers. Companies that have gotten into a weak position need to tackle the problem strategically, the authors argue. They should consider the following actions and implement the least-risky one that is feasible for their organization.

Bring new value to the supplier.

This is the easiest approach. Companies can provide new value in several ways—for example, by serving as a gateway to new markets or reducing the supplier’s risks.

Change how they buy.

Companies can consolidate their purchase orders, rethink purchase bundles, or decrease purchase volume.

Create a new supplier.

This is a high-risk option, but it can transform a company’s prospects. Firms have essentially two paths: They can bring in a supplier from an adjacent market or vertically integrate to become their own supplier.

Play hardball.

As a last resort, companies can cancel current orders and future business or threaten litigation.

Whatever option firms choose, they need to clearly understand the problem, work on it across functions, and think analytically and outside the box.

HBR Reprint R1507G

Idea in Brief

The Problem

The balance of power in an industry can dramatically shift from buyers to suppliers.

The Challenge

Companies that have gotten into a weak position with suppliers need to strategically redefine the relationship, tackling the problem as an enterprisewide challenge.

The Solution

• Bring new value to the supplier.

• Change how you buy.

• Create a new supplier.

• Play hardball.

In many industries the balance of power has dramatically shifted from buyers to suppliers. A classic example comes from the railway industry. In 1900 North America had 35 suppliers of cast rail wheels; railway builders could pick and choose among them. A century later no one looking to build a railroad had this luxury, as only two suppliers remained. Today there is just one, which means that railroad builders have no choice but to accept the supplier’s price.

A version of this article appeared in the July–August 2015 issue (pp.90–96) of Harvard Business Review.

Petros Paranikas is a partner and managing director in the Chicago office of the Boston Consulting Group where he focuses on procurement and portfolio strategy.

Dan Belz is a managing director and partner at the Boston Consulting Group and is a core member of its Corporate Development, Operations, and Procurement practices.

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