Negotiating the Terms and ConditionsBuyers' Training
October 10, 2012 — 1,418 views
Negotiating the Terms and Conditions
Every procurement professional understands that they are tasked with reducing the company’s costs to warehouse, manage and finance inventory. It requires the ability to manage vendor relationships and to ensure that the terms and conditions negotiated on contracts protect the company’s and the vendor’s interests. For some, it’s about having a broad vendor base, one that is constantly able to meet the demands of the company’s inventory. For others, it’s about reducing the vendor base and relying upon the best available suppliers to help reduce the company’s costs to warehouse and manage inventory. Regardless of which doctrine your company adopts, it must have some well-defined terms and conditions within its contracts and long-term agreements.
Delivery Requirements: Every contract must have provisions for delivery. However, it’s not about expecting your vendors to meet the exact delivery dates. Instead, it’s about defining a delivery window that the vendor must maintain. If your company operates in a business-to-business (B2B) environment, then that delivery window should stipulate an acceptable time frame where the vendor has several days to deliver a shipment. In addition, the delivery requirements should clearly state a transfer of ownership for vendor and customer.
Pricing: Every contract must stipulate the conditions for providing a price, accepting a price and it must include conditions under which a deviation can occur from the original agreed upon pricing. Within the pricing section of any agreement, companies should clearly define the application of taxes and duties on incoming shipments of raw materials, consumables and finished goods. It should also include stipulations for increases in volumes and their effect on pricing.
Payment: Every contract must outline provisions for payment of purchase orders or scheduled releases within contracts. Those provisions should clearly define the payment terms, the company’s credit limit and any discount the company can accrue for prompt or early payment of invoices. There should also be provisions concerning how both parties address concerns over pricing, invoices and payment terms.
Specifications: Most importantly, companies should outline their acceptable specifications pertaining to both the product itself and how it is packaged and shipped. Every contract should allow both parties to come to agreement concerning how a delivery is received. Finally, the agreements should also include provisions that account for any change in product revisions.
When looking to define your standard terms and conditions on purchase orders, be sure to define acceptable levels of performance for both you and your vendors. The best enterprises manage their vendors as partners. Both parties must come to an agreement governing how each will be measured in terms of performance. It’s important to make sure your agreements define these expectations for both parties.