I hope that you have enjoyed the article, “How To Negotiate When ‘Time Is Money’.”
Don’t miss updates on Procurement & Supply Chain, Subscribe here!
The article gave an example of how you can negotiate in order to give your supplier the incentive to deliver on time. Of course, on-time delivery is not the only aspect of good supplier performance, so I’ll use this post to provide a couple more examples…
“What you’ve proposed is what we consider a premium price. We usually push for rock bottom prices. However, we’d be willing to pay a premium price for premium performance. Here’s what we propose: you reduce your price by 10%; however, if your deliveries conform to the 4 parts-per-million defect rate that you promised, we’ll pay the price in your proposal.”
“What you’ve proposed is what we consider a premium price. We usually push for rock bottom prices. However, we’d be willing to pay a premium price for premium performance. Here’s what we propose: you reduce your price by 10%; however, if you respond to all service calls within 10 minutes as you promised, we’ll pay the price in your proposal.”
The point I’m trying to make with the above-linked article and this post is that you should never approach a negotiation without considering the criticality of supplier performance and how you might be able to negotiate creatively to assure – and not decrease the percentage chance of – satisfactory performance.
Comments
Excellent post. I’ve seen similar arrangements where the buyer agrees to pay more, later, if the supplier fears the buyer will not buy the amount of goods or services they promised.
I’d like to add one caution. If you are using these “pay later” techniques when buying goods internationally, be sure to coordinate such arrangements with your company’s Customs experts. Customs levies duties based on invoice value and if you pay more later without notifying Customs, they regard that as an evasion of duties. In some countries, including the US, they can ask to see underlying contracts and purchasing records to check whether such arrangements exist.