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Here are six tips on how to appropriately renegotiate a supplier contract. Tip 1: Approach your supplier carefully. With these types of situations, you have to approach your supplier initially as a partner.
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If you contracted for the product or service, they are under no obligation to concede to you. You are essentially asking them for a favor.
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You need to approach it like "Look, we are human and we made a mistake. We'd like to think that you are a partner that wouldn't take advantage of your partner's mistake, so we'd like to begin discussions about restructuring our contract so that our rate is more in-line with current market prices.
Often, when suppliers agree to renegotiate a price, they look to cut corners in quality, delivery, or service or to substitute a cheaper product or service. Tip 3: Convince the supplier that a price reduction is fair. Think about how you would feel if a contracted supplier approached you and said that they made a mistake and needed to charge you a higher price. How would you react? Would you feel they were trying to rip you off?here
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What could they say or how could they say it to persuade you that changing the price would be fair? Now, adapt those persuasion techniques to your situation when you petition the supplier for a price decrease. Tip 4: Consider the possibility that the relationship could devolve into an opportunistic one. If market prices went down and you approach the supplier for a price decrease, what do you think will happen if and when market prices go up?
Do you think that the supplier will be waiting to use this new leverage to get revenge and hammer you with a higher price?
If so, do you think that would be fair? Would a request for a price decrease ruin a relationship that will hurt your organization in the future? Tip 5: Consider ethics and cultural norms. Renegotiating a contracted price may be considered unethical in some cultures.
Are you breaking any established or implied ethics code by renegotiating? Tip 6: Put your reasoning into context. And threatening to sue isn't exactly a textbook way to boost business. Negotiation experts suggest a different approach: treating your business partner like a partner, not an adversary. MyPoints had locked in rates with its digital storage provider, but the market price had dropped.
Top Ten Tips for a Smooth Contract Renegotiation | The Shared Services & Outsourcing Network
It was shortly after the dot-com crash, and the storage company had lost many of its clients, so it was desperate to retain MyPoints. But Freeman recognized that a company in distress would appreciate an immediate infusion of cash. The storage provider agreed, releasing MyPoints from its obligations. With fuel prices soaring, Corwin had little to offer his clients except higher prices. But he did find one thing to sweeten the bitter deal: He told them they could choose the length of their contracts. He also pointed out that in a volatile market, companies might sometimes pay less under the new, floating rate system than with their current fixed prices.
How To Renegotiate A Supplier Contract
And he reminded them of the services his company had provided so far, such as on-time and short-notice deliveries, which they might not get from his competitors. As a last resort, when he thought the client was lost, he asked, "What would you do in my position? There's a danger to this approach: If negotiations break down, you've given your customer a lot of information he or she could use against you in a legal dispute.
But for Corwin, the potential reward--saving his company--outweighed the legal risks. At the end of his monthlong pilgrimage, he had profitable floating rate contracts with most of his clients.
About a dozen refused to renegotiate; Corwin honored the contracts with most of those clients, but a few found other vendors. None sued.