We put a large piece of business out for bid telling suppliers we plan to award a five year contract with indexed pricing. Suppliers bid accordingly and we make the award. The lawyers are unable to reach agreement on the final contract terms but the supplier behaves as if the contract was signed. Three and a half years into the award period we decide to go out for bid telling the incumbent we have no obligation since the contract was never signed. What are we training suppliers to do?
The supplier provides highly competitive pricing based on Net 30 payment terms. After the fact we tell them we need Net 60. They are happy to provide those terms but need to increase the price since Net 60 will require them to obtain a Letter of Credit. We say “no thanks” but pay Net 60 anyway. What are we training suppliers to do?
In the face of uncertainty, suppliers pad their pricing. From the supplier’s perspective, the above behavior was not anticipated, at least the first time. What happens the next time we ask this supplier for rock bottom pricing? Role modeling is the most powerful form of teaching. What are we role modeling to our suppliers? We should pay close attention to that. What goes around, comes around!
Your comments are right on. As customers we will ultimately reap what we sow. And this is a classic example of how not to treat suppliers. The customer-supplier relationship is a give an take relationship. But, too often, customers want to take more and more and give less and less.
I have seen suppliers go out of business due to pressures from the customer to keep the pricing so low that the supplier allowed the customer to hurt them in such a way they could not recover. This ultimately hurts the customer in the long run.
Business is not just business, it’s personal. Do unto others as you would have done to you. I’m sure the purchasing agents asked that even thought the contract wasn’t signed, the supplies were needed and please provide them. Live up to what amounts to your verbal agreement. While not paying early termination “fines/fees” at least adhere to the notice terms so the supplier can adjust ther spending on items with lead times. I guess once you give notice, you’ll be ok if they cease to provide supplies while the new contract is under bid and negotiation!
Clearly, on the payment terms, the suppliers should be savy enough to show pricing, discount for early payment and penalties for stretching the terms. If not, as the purchasing agent, ask for it to start appearing on invoices and get it into the new contract. You can still select suppliers based upon quality and cost and tell the accounting department that they are responsible for the charges (savings and penalties) related to making payment.