At the local purchasing association meeting on Tuesday, I had a fascinating conversation with a colleague who was struggling with a supplier situation.<\/p>\n
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You see, she had a contract in place with a supplier and that contract included a well-thought-out price adjustment provision. However, the supplier had recently been acquired by a bigger player in the industry. The \u201cnew\u201d supplier said that the contract was null and void since the \u201coriginal\u201d supplier no longer existed. Furthermore, the supplier said that it was increasing its prices by 20% even though a month earlier the price just went up by 7% in accordance with the price adjustment provision.<\/p>\n
Excuse me for a second while I find my blood pressure medication\u2026<\/p>\n
\u2026OK, thanks, I\u2019m back.<\/p>\n
Of course, my colleague asked me \u201cWhat should I do?\u201d and she explained how she pleaded with the supplier to no avail. Here\u2019s a summary of what I told her.<\/p>\n
1. Never, EVER act subservient to a supplier. In this case, I wouldn\u2019t be begging the supplier not to do what they threatened to do. I would simply say \u201cThat\u2019s not happening.\u201d By begging the supplier not to follow through, you are essentially giving them power. You are implicitly acknowledging that the decision is theirs to make and that they can elect to \u201cshow mercy\u201d or not. In these types of situations, I\u2019ve said things like \u201cIt\u2019s such a coincidence that you brought up the price issue. We\u2019ve recently decided here that the price needs to go down, plus we need to stretch our payment terms from 30 days to 45 days, and we need you to reduce your lead time from 8 weeks to 6 weeks. We were thinking that these changes would go into effect October 1 but may be able to hold off until November 1. By which date would you be prepared to implement these changes \u2013 October 1 or November 1?\u201d Now, of course, we didn\u2019t implement these changes. But the price didn\u2019t go up either and the supplier knew \u201cwho was boss.\u201d<\/p>\n
2. Most well-written contracts have an \u201cassignment\u201d provision saying that, when a successor acquires the supplier, the successor also acquires its contractual obligations. In fact, acquisition of contractual obligations is law in probably most of the world. If the contract had an assignment provision, this should be shown to the supplier as ammunition.<\/p>\n
3. Most well-written contracts have a \u201cdispute resolution\u201d provision where the parties agree to arbitration or mediation in the event of a dispute. This is the time where I would be insisting that we arbitrate\/mediate immediately.<\/p>\n
4. Not honoring a contractual obligation is a serious matter. You can never have the type of modern, collaborative supplier relationships necessary if your suppliers do not honor their obligations. So, I would source soon. If this is not a high spend category, I may not drop my other priorities to source this week or this month, but it would be on my near-term radar. Even if the incumbent ended up being the lowest priced or highest ranking bidder, I would think twice about awarding the business to them. If their contractual price structure can\u2019t be relied upon, it\u2019s time to look at the other fish in the sea. A supplier\u2019s proposal can only save you money if they actually honor the price and the price adjustment scheme that they agreed upon.<\/p>\n
NOTE: If you aren\u2019t familiar with price adjustment, assignment, and dispute resolution provisions, the online class \u201cSupply Management Contract Writing\u201d can help you learn how to apply them to your work.<\/p>\n","protected":false},"excerpt":{"rendered":"
At the local purchasing association meeting on Tuesday, I had […]<\/p>\n","protected":false},"author":12,"featured_media":4014,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2541","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"yoast_head":"\n