6 Ways to Use Chat to Better Understand Supplier Costs
Buyers are under constant pressure to evaluate supplier quotes, justify cost increases, and negotiate effectively.
Too often, suppliers provide incomplete information or push back on requests for detail, leaving buyers with little leverage.
Chat-based AI (like ChatGPT) can help. By using well-structured prompts, buyers can quickly build knowledge, validate supplier claims, and frame better negotiation questions.
The key is to use a Role–Task–Context–Output (RTCO) approach when prompting.
Here are six practical ways to put Chat (ChatGPT or any Chat-based AI tool) to work:
1. Understand the Manufacturing Process for Your Category
Situation: Many buyers negotiate price without fully understanding how a product is made. Without knowing the key steps, it’s hard to evaluate whether a supplier’s cost structure makes sense.
Initial Prompt (RTCO):- Role: Act as a manufacturing engineer specializing in [category, e.g., aluminum sand castings].
- Task: Explain the typical manufacturing process.
- Context: The product is purchased by an OEM that wants to understand key cost drivers.
- Output: Provide the major steps and highlight where most of the cost is incurred.
- Role: Continue as a manufacturing engineer.
- Task: Identify cost sensitivities.
- Context: Focus on which steps are labor- or energy-intensive.
- Output: Explain how automation or process changes could reduce cost.
Expected Result: A clearer view of where costs come from in your category, helping you spot when supplier quotes are out of line with industry norms.
2. Brainstorm a List of Cost Drivers
Situation: Cost drivers come from both design decisions (size, material choice, tolerances) and external factors (labor, freight, energy). Buyers often miss cost drivers that aren’t obvious.
Initial Prompt (RTCO):- Role: Act as a cost analyst.
- Task: Brainstorm the key cost drivers for [product].
- Context: Separate them into design-related and external factors.
- Output: Provide two lists showing drivers in each category.
- Role: Act as a senior buyer.
- Task: Prioritize cost drivers.
- Context: Focus on whch usually have the biggest impact and which are often overlooked.
- Output: Deliver a ranked list with short explanations.
Expected Result: A comprehensive list of cost drivers to use when evaluating supplier quotes or working with engineering on cost reduction.
3. Validate a Supplier Request for a Price Increase
Situation: A supplier has submitted a price increase request for a commodity where you have limited knowledge. They refuse to provide detailed cost breakdowns. Their last increase was on January 1, 2023, and you want to know whether this new request aligns with actual market drivers over that time period.
Initial Prompt (RTCO):- Role: Act as a commodities market analyst.
- Task: Summarize the main cost drivers for [commodity] since 1/1/2023.
- Context: Consider raw materials, labor, energy, and freight.
- Output: Provide a summary of key market movements over that period.
- Role: Act as a procurement advisor.
- Task: Estimate the likely cost impact.
- Context: Compare market movements to the supplier’s request.
- Output: Provide a reasonable range of cost impact and assess if the request is aligned.
Expected Result: A fact-based perspective on whether the supplier’s requested increase is justified, giving you credibility to either accept, challenge, or negotiate the request more effectively.
4. Find Alternative Suppliers
Situation: Relying on a small set of suppliers limits leverage and options. Buyers often need quick ways to identify credible alternatives.
Initial Prompt (RTCO):- Role: Act as a global sourcing expert.
- Task: List potential suppliers for [product/category].
- Context: Focus on suppliers in [region] that serve the [your industry, e.g., automotive] industry. Include company size, capabilities, and certifications such as [ISO 9001, IATF 16949, AS9100, etc.].
- Output: Provide a structured list of supplier candidates.
- Role: Act as a sourcing consultant.
- Task: Evaluate competitiveness.
- Context: Use factors like location, industry experience, and certifications.
- Output: Recommend which suppliers are most likely to be cost-competitive.
Expected Result: A shortlist of alternative suppliers to expand sourcing options and create competitive tension in negotiations.
5. Improve Your Active Listening with Better Questions
Situation: Buyers often ask leading or judgmental questions that shut suppliers down. To get useful insights, buyers need open, non-judgmental questions.
Initial Prompt (RTCO):- Role: Act as a negotiation coach.
- Task: Suggest open-ended, non-judgmental questions.
- Context: Questions should help buyers better understand supplier cost structures.
- Output: Provide a list of 5–7 questions to use with all suppliers.
- Role: Continue as a negotiation coach.
- Task: Provide a neutral question about overhead.
- Context: One supplier’s overhead is much higher than others, but the buyer wants to ask all suppliers.
- Output: Provide a neutral way to ask how overhead costs were developed.
Expected Result: A set of active listening questions that encourage suppliers to share information, helping you uncover insights without damaging relationships.
6. Sharpen Negotiation Questions
Situation: Buyers who only push for “lower prices” risk losing credibility. The most effective negotiators come armed with insightful questions backed by data.
Initial Prompt (RTCO):- Role: Act as a senior procurement negotiator.
- Task: Suggest probing, fact-based questions.
- Context: Focus on a supplier’s quote for [commodity].
- Output: Provide 5–7 probing questions that dig into assumptions.
- Role: Continue as the same negotiator.
- Task: Recommend follow-up questions.
- Context: Ensure questions uncover assumptions without being confrontational.
- Output: Provide 3–5 follow-up questions.
Expected Result: A stronger negotiation position, with suppliers recognizing that you are informed, credible, and focused on facts instead of just price pressure.
Pitfalls of Relying Only on Chat
While Chat is a powerful tool, buyers need to be aware of its limitations:
- Generic Answers: Chat doesn’t know your company’s unique cost drivers, supplier history, or commercial strategy.
- Data Gaps: Market data references may be directional but not as accurate as subscription databases or supplier-submitted details.
- Risk of Over-Reliance: If buyers rely only on Chat, they may miss nuances in cost structures or negotiation dynamics that come from experience and training.
- Supplier Pushback: Using Chat outputs without deeper cost knowledge may weaken credibility if suppliers challenge your assumptions.
Closing Thought
The most effective buyers aren’t just negotiating for a lower number — they’re building knowledge, validating assumptions, and asking better questions.
Tools like Chat can help, but they’re only part of the solution.
That’s why Advanced Purchasing Dynamics created the AI Skills for Procurement and Cost Management Certification Training Programs.
Together, they can equip buyers not only to use Chat effectively, but also to apply structured cost management techniques, interpret data correctly, and gain credibility with suppliers and leadership.
APD offers a wide range of insightful resources, including expert-led training, on-demand webinars, and blogs on leveraging AI for purchasing!
Interested in cutting costs strategically? Dive into APD’s dedicated hub for savings-focused resources and services.