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How can you make your supplier contracts mutually beneficial?

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Supplier contracts are essential for any business that relies on external vendors for goods or services. However, many suppliers and buyers tend to focus on their own interests and goals, leading to conflicts, misunderstandings, and inefficiencies. How can you make your supplier contracts mutually beneficial, so that both parties can achieve their desired outcomes and maintain a positive relationship? Here are some tips to help you craft win-win agreements that foster trust, collaboration, and value.

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Sachin Ambadkar

Senior Manager Strategic Sourcing @ Kirloskar Brothers Limited | Procurement,Ex Wilo,Ex Wipro Pari,Ex TATA Motors
Vignesh K.

Manufacturing Sourcing & Exports of Engineered Components | Industrial Fasteners | Assembly Consumables | Custom CNC…
Antonio Goncalves

CEO @ procuro.ai ? helping unlock more value from your contracts ? AI-powered Procurement

1 Understand your supplier's perspective

Before you start negotiating a contract, you need to understand your supplier's perspective, motivations, and constraints. What are their goals, needs, and challenges? How do they measure their performance and success? How do they view your business and the market? By putting yourself in their shoes, you can identify their priorities, expectations, and pain points, and use them as a basis for finding common ground and creating value.

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Sachin Ambadkar

Senior Manager Strategic Sourcing @ Kirloskar Brothers Limited | Procurement,Ex Wilo,Ex Wipro Pari,Ex TATA Motors
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In the contract review detailed scope and all techno- commercial parameters need to be discussed. In case of commercial detailed cost breakup it should be benchmark with market with fix and variable parameters. It will help the next contract review .

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Antonio Goncalves

CEO @ procuro.ai ? helping unlock more value from your contracts ? AI-powered Procurement
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One thing to keep in mind around supplier contracts is that the goal is not to WIN in the deal. the goal is to create transparency around your partnership with your supplier. If both parties agree that the goal is to lay the ground rules for how to work together, it becomes easy to find mutually beneficial agreements.

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Vignesh K.

Manufacturing Sourcing & Exports of Engineered Components | Industrial Fasteners | Assembly Consumables | Custom CNC Cutting Tools | Partner & Founder at CNV Engineering | Co Host The Masters Edge Podcast???
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We create mutually beneficial supplier contracts through a proven approach: Experience: We partner with suppliers experienced in manufacturing similar parts. Pricing: We establish a mid-range price based on our gauging mechanisms and comparative quotes. Fair Margins: Ensure suppliers get good margins, unaffected by minor cost fluctuations. Commitment: We release purchase orders for at least 6 months to plan better. Ample Lead Time: Sufficient lead time prevents rushed deliveries, reducing errors. Problem-Solving: Collaboratively address rejections, finding solutions to root causes. Our approach builds trust, benefiting both parties in long-term partnerships. For more insights and to connect, visit my LinkedIn profile.

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2 Define clear and realistic objectives

A mutually beneficial contract should have clear and realistic objectives that align with both parties' interests and capabilities. You should avoid vague or ambiguous terms that can lead to confusion or disputes. Instead, you should specify the scope, deliverables, quality standards, timelines, and costs of the contract, as well as the roles and responsibilities of each party. You should also define how you will measure and monitor the results, and what are the consequences of non-compliance or underperformance.

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3 Negotiate with respect and transparency

Negotiating a contract is not a zero-sum game, where one party wins and the other loses. Rather, it is a collaborative process, where both parties can benefit from finding solutions that meet their needs and preferences. To negotiate with respect and transparency, you should communicate openly and honestly, listen actively and empathetically, acknowledge and address concerns, and avoid aggressive or manipulative tactics. You should also seek to understand the rationale behind each offer and counteroffer, and explore options that can enhance the value of the contract for both sides.

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Vignesh K.

Manufacturing Sourcing & Exports of Engineered Components | Industrial Fasteners | Assembly Consumables | Custom CNC Cutting Tools | Partner & Founder at CNV Engineering | Co Host The Masters Edge Podcast???
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Our negotiations are founded on respect and ethical boundaries: Respect Margins: We never intrude on supplier margins, recognizing their financial commitments. Guideline Pricing: Our approach ensures fair margins without squeezing. Transparent Revisions: Prices are revised transparently when costs fluctuate. Two-Way Fairness: We uphold reciprocity, respecting supplier boundaries. By valuing supplier margins and staying within our limits, we cultivate ethical and enduring partnerships. Do leave a LIKE if you find this insightful !

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4 Incorporate flexibility and adaptability

A supplier contract is not a static document, but a dynamic agreement that may need to change over time. Market conditions, customer demands, technological innovations, and regulatory requirements can affect the performance and feasibility of the contract. Therefore, you should incorporate flexibility and adaptability into your contract, so that both parties can respond to changing circumstances and opportunities. You can do this by including clauses that allow for adjustments, revisions, extensions, or terminations of the contract, as well as mechanisms for resolving disputes and managing risks.

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5 Build trust and rapport

A supplier contract is not only a legal document, but also a relationship document that reflects the level of trust and rapport between the parties. Trust and rapport are essential for creating and maintaining a mutually beneficial contract, as they enable cooperation, communication, and problem-solving. To build trust and rapport, you should treat your supplier as a partner, not an adversary. You should also respect their expertise and experience, appreciate their contributions and feedback, and recognize their achievements and efforts.

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Vignesh K.

Manufacturing Sourcing & Exports of Engineered Components | Industrial Fasteners | Assembly Consumables | Custom CNC Cutting Tools | Partner & Founder at CNV Engineering | Co Host The Masters Edge Podcast???
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Our approach is clear and effective: Clear Communication: We provide detailed dimensions during discussions to maintain critical tolerances within 70%. Team Collaboration: Multiple team members engage with suppliers to ensure communication is not reliant on a single point contact. Quality Partnership: We connect suppliers with quality team for collaborative efforts during PPAP and Quality Plan stages. Structured Resolution: We avoid unnecessary rejections, holding meetings involving key stakeholders to resolve quality issues. Open Access: Our suppliers have direct access to our top management for swift issue resolution These practices ensure lasting, efficient, and respectful partnerships. Do leave a LIKE if you find this insightful!

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6 Review and improve the contract

A supplier contract is not a one-time deal, but a continuous improvement process that requires regular review and evaluation. You should monitor the performance and satisfaction of both parties, and collect and analyze data and feedback. You should also conduct periodic meetings and audits, and discuss the strengths and weaknesses of the contract, as well as the opportunities and threats. By reviewing and improving the contract, you can ensure that it remains relevant, effective, and beneficial for both parties.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you make your supplier contracts mutually beneficial?

1

2

3

4

5

6

7

1 Understand your supplier's perspective

2 Define clear and realistic objectives

3 Negotiate with respect and transparency

4 Incorporate flexibility and adaptability

5 Build trust and rapport

6 Review and improve the contract

7 Here’s what else to consider

Supplier Sourcing

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How can you make your supplier contracts mutually beneficial?

1

2

3

4

5

6

7

1 Understand your supplier's perspective

2 Define clear and realistic objectives

3 Negotiate with respect and transparency

4 Incorporate flexibility and adaptability

5 Build trust and rapport

6 Review and improve the contract

7 Here’s what else to consider

Supplier Sourcing

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