Situation: A company has a long standing relationship providing an exclusive product to a major customer and has a negotiated price and volume contract for this product. The customer changes product design every few years, and the company is the favored supplier of certain components. The customer’s purchasing agent has asked to renegotiate price on the current contract. The company wants to maintain a good supplier relationship with the company, but doesn’t want to lower the price on its product. How should the CEO work with the purchasing agent?

Advice from the CEOs:

• There are two distinct opinions from the group:
  • You have a contract in place for volume and price. If you yield on price now just to assure the remaining business on the current contract you are saying, in essence, that future pricing contracts are also negotiable even after the contract is negotiated and signed.
  • On the other hand, if you know that there is a model design change in process and want to assure a good ongoing relationship with the company you may choose to yield a bit on price for the remainder of the current contract.
  • The choice between these two will be a gut choice based on your relationship with the customer as well as your past history with the purchasing agent.
• You might want to try a creative alternative. Check with your own component vendor and inquire about pricing if you place orders for your own remaining components on the current product today versus in several weeks. If there is a discount for placing the order today, call the purchasing agent and tell him that if he orders the remaining product on the current contract today, you will pass on the discount that you receive from your vendor. If you don’t get the order today, then you will lose the discount, and there may be a delay on your being able to deliver the remaining parts under the current contract.

Key Words: Component, Supplier, Vendor, Purchasing Agent, Contract, Relationship, Discount, Delivery, Negotiate

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