Coping with inflation: Has anybody renegotiated terms or prices with their suppliers?

Dan Hobson · Sep 16, 2022

As inflation hits a 30-year high, the cost of running a business has skyrocketed. Whether it’s cooking oil or building materials, electricity or eggs, fertiliser or second-hand vehicles – putting up prices as a business can only get you so far.

We’re keen to hear from anybody that has successfully renegotiated their terms or prices with their suppliers. If that sounds like you, what advice can you offer to other UKBF members feeling the squeeze? Any renegotiation tips to weather the storm?

Conversely, has anybody already tried to renegotiate with their suppliers but failed? If so, what did they say? What are you doing instead?

Any other thoughts on renegotiation generally are more than welcome, of course.

Mark T Jones · Sep 16, 2022

I'll be interested to hear responses.

My customers buy equipment are seeing rising prices and quote which will only hold prices for 5 days (against 90 day traditionally)

DazRave · Sep 16, 2022

We started to hold stock for the first time ever instead of delivering straight to client. This mainly was due to crazy lead times so we were ordering way in advance but has had a happy side effect of discounted prices due to bulk orders.

Casually made · Sep 21, 2022

The bank of England's lackadaisy approach to the problem has been bone chilling and now the pound is starting to pay the price

We are at virtual parity with the Dollar for Christ sake given almost everything overseas is traded in dollars i am really starting to notice the blindingly obvious weakness in our exchange rate

The sooner i can leave this god forsaken country the better

fisicx · Sep 21, 2022

Casually made said:
The sooner i can leave this god forsaken country the better

What’s stopping you? My mate sold his house, moved to Spain and is living a very low cost life.

Casually made · Sep 21, 2022

fisicx said:
What’s stopping you? My mate sold his house, moved to Spain and is living a very low cost life.

My mrs at the moment but she is slowly coming around to the idea as i explain the mess britain is in

HFE Signs · Sep 21, 2022

We've managed to negotiate price freezing on some material costs on the basis of we buy larger quantities at a time. We've also told our customers that our prices are frozen until the end of 2022

JEREMY HAWKE · Sep 21, 2022

I'm on the phone with the fuel card companies every Monday morning!

Their latest trick is to drop the price ten days after the local garages

Red Wood · Sep 21, 2022

HFE Signs said:
We've managed to negotiate price freezing on some material costs on the basis of we buy larger quantities at a time. We've also told our customers that our prices are frozen until the end of 2022

Brave move. If your costs move surely they should be passed on?

What happens if your material prices jump again, I'm assuming they are commodity based?

HFE Signs · Sep 22, 2022

Red Wood said:
Brave move. If your costs move surely they should be passed on?

What happens if your material prices jump again, I'm assuming they are commodity based?

As I said, we've negotiated price freezing and therefore our prices are also frozen for the rest of this year

Red Wood · Sep 22, 2022

HFE Signs said:
As I said, we've negotiated price freezing and therefore our prices are also frozen for the rest of this year

Is it plausible to consider your supplier may scrap the price freeze if their cost of material significantly increases, I'd assume that agreement would be out the window.

MOIC · Sep 22, 2022

Dan Hobson said:
As inflation hits a 30-year high, the cost of running a business has skyrocketed. Whether it’s cooking oil or building materials, electricity or eggs, fertiliser or second-hand vehicles – putting up prices as a business can only get you so far.

We’re keen to hear from anybody that has successfully renegotiated their terms or prices with their suppliers. If that sounds like you, what advice can you offer to other UKBF members feeling the squeeze? Any renegotiation tips to weather the storm?

Conversely, has anybody already tried to renegotiate with their suppliers but failed? If so, what did they say? What are you doing instead?

Any other thoughts on renegotiation generally are more than welcome, of course.

A good post.

As far as buying from China is concerned, it's absolutely worth negotiating with suppliers, as they're also feeling the pinch.

Although shipping rates are coming down, the exchange rate is not helping.

Aim for a 2% - 5% discount, depending on your products and components used.

HFE Signs · Sep 22, 2022

Red Wood said:
Is it plausible to consider your supplier may scrap the price freeze if their cost of material significantly increases, I'd assume that agreement would be out the window.

Given that we spend 8-10k per month with them, I very much doubt they would go back on their word also they have the stock for the rest of the year which they paid for at current prices, I'm happy to trust them and pass the savings on to our customers whilst we can

Lucan Unlordly · Sep 22, 2022

We started tracking supplier stock levels a while back. They are all published online and we can identify the lines that aren't selling and put in a cheeky offer for clearing the lot. Our annual spend and subsequent discount level should improve as a result.

Dillon Lawrence Ltd · Sep 22, 2022

HFE Signs said:
Given that we spend 8-10k per month with them, I very much doubt they would go back on their word also they have the stock for the rest of the year which they paid for at current prices, I'm happy to trust them and pass the savings on to our customers whilst we can

If you’re wanting to offer low prices fine but wouldn’t you just be better off keeping the prices low and not mentioning any price freeze just in case? Trust doesn’t really come down to it when they are being squeezed.

HFE Signs · Sep 22, 2022

Dillon Lawrence Ltd said:
If you’re wanting to offer low prices fine but wouldn’t you just be better off keeping the prices low and not mentioning any price freeze just in case? Trust doesn’t really come down to it when they are being squeezed.

I accept what you're saying, however there is a marketing advantage by being honest and also preparing people for an increase is better than just doing it

Dan Hobson · Sep 23, 2022

HFE Signs said:
We've managed to negotiate price freezing on some material costs on the basis of we buy larger quantities at a time. We've also told our customers that our prices are frozen until the end of 2022

Very interesting. Do you mind me asking how much you've had to increase your quantities by to negotiate the price freeze?

DavidWH · Sep 23, 2022

Ultimately it all gets passed on with us.

We've looked at alternative suppliers, and the prices are pretty much the same. We could of course use an inferior, cheaper material, but that's not what we built our reputation on.

We sacked off our in house small format print set up after covid, and a good job too, the price of paper is a contantly increasing, stock levels hit and miss. Even the big trade printers we use are being hit with it.

We could bulk buy stock in, but I'd rather have the money in the bank.

@HFE Signs the only potential issue, is that by holding prices, when you do increase prices it may be more significant - How much are you anticipating any future increase to be?

HFE Signs · Sep 23, 2022

Dan Hobson said:
Very interesting. Do you mind me asking how much you've had to increase your quantities by to negotiate the price freeze?

It depends on the product Dan, typically 50% more stock

HFE Signs · Sep 23, 2022

DavidWH said:
Ultimately it all gets passed on with us.

We've looked at alternative suppliers, and the prices are pretty much the same. We could of course use an inferior, cheaper material, but that's not what we built our reputation on.

We sacked off our in house small format print set up after covid, and a good job too, the price of paper is a constantly increasing, stock levels hit and miss. Even the big trade printers we use are being hit with it.

We could bulk buy stock in, but I'd rather have the money in the bank.

@HFE Signs the only potential issue, is that by holding prices, when you do increase prices it may be more significant - How much are you anticipating any future increase to be?

This is something we closely monitor, we prefer to keep our prices as low as possible, remembering if we are more competitive then we get more share of the market and ultimately make more sales, equally we have to make sure our margins work. At this stage we can't predict a percentage but we expect it to be between 5-10%

Red Wood · Sep 23, 2022

GBP/USD is now at 1.10 - let's see how this effects imported materials!

MarkOnline · Sep 25, 2022

From a manufacturing perspective.

We purchased a parcel of raw material from a UK producer/processor 2 years ago which should last us approx 5-7 years. We always put money into raw materials when the deal/ product justifies it. Our suppliers know we will pay pro forma buy volume and keep our mouths shut. The right stock at the right money is better than cash in the bank to us. We could do with more low cost warehousing space, but its in short supply.
We do purchase certain components from abroad, but their cost as a percentage of the final product price is miniscule. We are looking at purchasing higher volume of product to reduce our component costs in relation to our competitors. We can sit and wait, things are always changing, we've been saving up ever since we started.

This "buy just enough for the week" purchasing model is a dangerous place to be IMO.

Paul Kelly ICHYB · Oct 3, 2022

The most underrated and hardest step most people fail to take is asking for a discount/better terms etc.

A bit like selling - great pitches but not asking for an order!

SillyBill · Oct 10, 2022

MarkOnline said:
This "buy just enough for the week" purchasing model is a dangerous place to be IMO.

Yes and no for us. There are plenty of advantages to being near to the prevailing "market rate" by being stock keen IME. We do keep decent stock generally too incidentally but I've been burned in all directions, including having lots of stock and the market moving against you rapidly and harshly. It has happened to me a few times, stock has always been among my most costly business "mistakes".

With COVID/War in Ukraine the last 2-3 years has created bedlam in our game with moving prices, up and down. IME it is a lot easier to mitigate rising prices in our business than falling prices due to the stock aspect. In one notable example we've seen prices increase 400% (to its market peak) in a certain raw we buy a lot of (can buy £200k/month) and now its back down to "only" 200%, when it started to come down in July, very rapidly too. With what we had in stock (about a months worth) and stock we were commited to (12-16 week lead time so had a further 3-4 months on the water) - well, all in all, we've lost a small fortune by having to sell off this stock at a big discount to the market. This was stuff 6 months ago that was under Force Majeure and was a dutch auction to get any whatsoever. Feast to famine, and back again...my overriding experience is there is never one winning strategy for stock.

One metric I noticed a competitor (larger business than mine and v. profitable) was monitoring that we never did (until I read their accounts) was annual stock turnover, from memory they were turning stock over just over 6 times a year...that was bloody impressive from what I was looking at internally at the time. A measure of how quickly a business can turn cash into stock and stock back into cash is a good indicator of business quality. It can work (huge stock bought cheaply), and we do it ourselves at times too, but if I'm being honest with myself it is because I don't have the energy to find a use for the cash for other purposes and so its an easy thing to do... basically more cash lying around than ideas of how better to employ it so why not buy a shed load of something cheap? Tying cash up for 6 years is a long time to wait for a single return on that cash as opposed to others, on a different stategy, who may turn the same cash over for a profit 15-30 times in that same time period. SMEs can run differently to large companies and this is one classic example of where, a FD in any sizeable business would, probably quite rightly, be fired for gross misallocation of capital for holding stock for such lengthy periods of time

Red Wood · Oct 10, 2022

@SillyBill , top quality post. Couldn't agree more. Our products are essentially commodities, so in current climate we'd rather run out of stock by running lower qtys with more production orders in pipe line than overstocked at the wrong level when the inevitable fall in market price slaps us around the face. No one likes holding the bag.

Stock turnover is a great tool too. A life hack to quickly find the slow movers, walk around the warehouse and see what has that horrible grey warehouse dust over the top of the pallets

MarkOnline · Oct 11, 2022

SillyBill said:
Tying cash up for 6 years is a long time to wait for a single return on that cash as opposed to others, on a different stategy, who may turn the same cash over for a profit 15-30 times in that same time period. SMEs can run differently to large companies and this is one classic example of where, a FD in any sizeable business would, probably quite rightly, be fired for gross misallocation of capital for holding stock for such lengthy periods of time

In the instance I gave we got our money back within 3 months, and subsequently grew our product range and turnover made from that raw material into the mix. The deal changed our outlook on an entire range of product. On our standard ranges we have a stock turn of raw materials of around 14. We pay all our suppliers pro forma. We are a low 7 figure TO business and it suits us to operate this way. No debt of any consequence and no pressure, happy days. If it wasn't in stock it would be in the bank.

Greg PW Shearman · Oct 14, 2022

We are a food manufacturer - in August we moved supplier to buying direct from manufacturer - typically about 25-35k per month.
We agreed prices and had a verbal agreement to keep the prices till new year where we can review.
Last week they put them up 12% they thought they had me over a barrel - I had a back up supplier who bit my hand off and saved 1.5%

So my advice is start lining up suppliers.
Don't be committed to buying from one
Try and get prices contracted but many suppliers are not sticking to these

and finally - retail prices are rising - lifting your selling prices now are expected so do not hesitate to raise them

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Coping with inflation: Has anybody renegotiated terms or prices with their suppliers?