Contract Renegotiation Tips

Every Contract which is finalized comes for renegotiation whenever there are changes in business environment. Jamie Liddell recently wrote a very good article at SSON on contract renegotiation titled as “Top Ten Tips for a Smooth Contract Renegotiation”. The article contains ten tips to smoothly renegotiate the contract. Excellent article and must read for buyers. Here is the summary of these ten steps:

1. Know what’s right for your business.
Have complete data about your Contract. Discuss internally with your stakeholders and leadership and clearly define goals and objectives you hope to achieve in the renegotiation.
2. Have clear rules of engagement.
Set out and agree fair rules with your supplier. Define time lines and people involved in the negotiation. Make your discussion fair and just in order to maintain a long lasting relationship with your supplier.
3. Make sure it’s worth everyone’s while.
It takes two to tango. There needs to be an incentive for the supplier to renegotiate specially in case it’s a midterm negotiation, you must offer him some reward to conduct a smooth renegotiation.
4. Bring the right people to the table
Assemble the right team. The team should have people who can make long term decisions. These teams also need to preserve an effective relationship so that they can work well together after the revised deal has been struck.
5. Aim for success, plan for failure
Every negotiator should be prepared for the BATNA (Best Alternative To Negotiated Agreement). Should the parties not be able to come to agreement, what happens? Both parties should understand the floor and the ceiling boundaries.
6. Understand the status quo
Understand the details of contract. What is going right and what is going wrong in the contract and importantly what could be the ramifications of changes proposed in the negotiation.
7. Learn from your mistakes.
Every contract is negotiated with some assumptions of quality of service and productivity of the service. However things normally don’t go as per planned. So understand why things didn’t work out the way it was negotiated. You should think about long and hard, and work towards overcoming in this next iteration of the deal.
8. Your tone matters - a lot.
Don’t be too aggressive or weak & defensive in your tone. Present a solid, factual, respectful case to the supplier in the best professional manner.
9. Know your other options.
Always understand your options. Whether you have a source ready or a competitive source could be easily found out or you have to ensure that current service provider provide the service. It’s imperative to understand where indeed you can go in the event of things getting bogged down
10. Don’t dawdle.
Instill a sense of urgency. Clearly communicate your objectives and attempting to find ‘the middle way’ to achieve those objectives.

Single Source Supplier: A Buyer Nightmare

Negotiating with Single Source Supplier is always a difficult situation for any Buyer. Often these cases are common when you are buying spare parts and specialized tooling or services. Also when you are managing legacy plants there are often cases where your choice of buying from different supplier is limited. How to negotiate in these cases is difficult and finding a win-win solution are limited.

Recently there was an article at Supply Excellence by Justin Fogarty titled “Negotiating with a Sole Source Vendor”. The article refers a similar debate happen on LinkedIn where there was many solution offered and Justin summarize these solutions into 6 point summary.

1. Play to Each Other’s Goals: Find the balance of power. Establish clarity about your and suppliers goals. That is what would make you more attractive to them and can be used in exchange for cost reductions.
2. Analyze the Cost-Drivers: Best negotiation strategy in any scenario. Understand each cost drivers and suppliers logic of pricing and negotiate based on that.
3. Squeeze out More Value: In specific cases where it is forced by law to deal with service provider. Offer them more freebies.
4. Maintain Competitive Spirit: Always check the competitive level of pricing. Supplier must get the feeling they may not be the single source on the next project if they are cheating you.
5. Stay Alert: Keep on checking the pricing of whole Commodity. There might be instances where initial purchase price is high because of new technology ( Ex : Servers) and in few months down the line as newer technology comes the actual price of the same server has gone down. Suppliers generally don’t forward the price reduction. Other point is if you are buying the same item again and again from single source you can leverage and ask for discount.
6. Bring in the Heavies: Involve Higher ups in negotiation which generally helps during negotiations.

You can read more about these points in detail from Justin’s Article. Also post any new points you think could help in negotiation better while dealing with single source supplier.

Global Supply Chain vs Regional Supply Chain

Globalizatation has almost reached its peak in last decade and since the start of recession there has been a lot of talk on whether globalization will survive the new wave of protectionism specially which is done by western governments to stabilize their economy and improve their job market.

Another interesting aspect coming out from study of Globalised supply chain is that it is becoming very complex. It is becoming increasingly difficult to identify the true cost of the product (in cases Tier 1 and Tier 2 suppliers are placed across the globe), the benefits of having a globalised supply chain and overall risks associated with a global supply chain.

Due to these factors companies are now pushing for much simpler and near shore supply chain so that risks associated (in terms of cost, delivery and quality) with the supply chain can be managed easily. Procurement Leaders recently ran an article “Regional procurement the new globalisation”. The article quoted , Dan O'Regan , head supply chain of Ernst &Young as saying that "I think you will find smaller, more regional supply chains”. The same view was supported by CEO of Philips Gerard Kleisterlee.

But the fundamental question is that whether environmental issues or economic issues can force companies to abandon their Global Sourcing objective. Especially when companies across the globe have invested so much in building infrastructure for it and moving away from Globalised setup to regional setup will diminish the benefits of economies of scale achieved (by the companies) by integrating their supply chain.

The answer to the question remains a tough one to decide. There are lots of benefits of smaller supply chain as it gives increased visibility to spend, less cost to manage and more control while global supply chain provides better leverage in term of volume, access to wider supplier base and best cost across the globe. In my view the idea of globally connected supply chain is still economically superior to abandon in a hurry.

Overview of Spend Analysis Market

Spend Analysis is one of the most important part of ePurchasing Market. Analyzing Spend data and then consolidating spend between key supplier has now become key to purchasing policies. Though every company wants to analyze and consolidate it’s spend but only few has the requisite capabilities to do so. To bridge this gap there are lots of players who has now come up. The spend analysis market is increasingly becoming more competitive and crowded. It is growing fast and provides a range of offerings based on complexity and price. However it’s a healthy sign for this new market as newer innovation and better products are coming into the market. Also emergence of Saas has given a great amount of boost to ePurchasing Market and Spend Analysis suppliers have used the opportunity to maximum extent.

Spend Analysis though has a very old beginning but with the boom of ePurchasing Market in early 2000 it has started to develop and prosper in great deal. Andrew Bartels at Forrester Research published a very detailed white paper on ePurchasing Market Aptly titled Predictions 2009: ePurchasingMarket. He covered in great deal about the whole market and also given some overview about Spend Analysis Market. As per the report by Andrew Spend analysis market has achieved a double digit growth since 2004. Growing by phenomenal 27% in 2008 and to put matter into prospective it CAGR from 2004 to 2009 is 20%. Also it is expected to increase (despite of tough economic conditions) to about 13% in 2009. The data as a whole confirms a very healthy picture of Spend Analysis market.

Along with growth in the sector there is also a growth in the number of suppliers offering highly efficient and unique products. Susan Avery recently published her article titled Purchasing's guide to spend analysis at Purchasing.com. The article covers very comprehensively almost all the major players in Spend Anysis Market and gives an exciting insight into major features of the product offered, Suppliers Claim about their product and their pricing model. The report is very useful to all those who wants to know in detail about this market.

Some of the Major Supplier Highlighted in the article are:

1. Ariba.
2. Zycus Inc.
3. Emptoris.
4. Basware, Inc.
5. BravoSolution.
6. CVM Solutions.
7. Enporion, Inc.
8. Fieldglass, Inc.
9. Global eProcure.
10. Iasta.
11. IQNavigator.
12. Insight Sourcing Group.
13. Ketera.
14. Oracle.
15. PurchasingNet, Inc.
16. U.S. Bank.