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Your key supplier raises prices out of the blue. How will you adapt and secure your sourcing strategy?

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When a key supplier suddenly raises prices, it can send shockwaves through your business. Your sourcing strategy, once a stable foundation, now feels like shifting sand beneath your feet. Adapting to this unexpected change is crucial to maintaining your competitive edge and ensuring the continuity of your supply chain. In the face of such challenges, it's important to remain calm, assess the situation thoroughly, and make informed decisions that will secure your business interests in the long term. Let's explore how you can navigate this tricky situation and come out on top.

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Hitesh Moliya

Manager - Techno Commercial (Strategic Procurement, Sourcing and Service Contracts) at Adani Kutch Copper Ltd | Ex-LnT
Renu Aggarwal

Procurement Manager | Global Strategic Sourcing | Packaging | Project Management | Supplier Relationship & Performance…
Sahil Sharma

Buyer - RM | PM | CAPEX | OPEX

1 Assess Impact

First, determine how the price increase affects your business. Analyze the cost structures of your products or services to understand the financial impact. Consider whether the supplier's goods are critical to your operations or if there are alternatives. This assessment will help you decide whether to absorb the costs, pass them on to customers, or find cost-saving measures elsewhere in your operations. Remember, a clear understanding of the impact will guide your next steps effectively.

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Renu Aggarwal

Procurement Manager | Global Strategic Sourcing | Packaging | Project Management | Supplier Relationship & Performance Management | Healthcare/FMCG | Expert in Manufacturing Contract Negotiation
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Firstly, it is essential to review the agreed and signed contract to identify any clauses regarding price increases and to conduct market benchmarking to ascertain the justifiability of the new price. Following this, the existing budget must be assessed before initiating discussions with the supplier. Negotiations should focus on determining whether the supplier can delay the price increase or implement it in a staggered manner to mitigate the immediate impact on the business. Concurrently, it is prudent to explore alternative markets for sourcing and engage in internal discussions with the technical team to evaluate the feasibility of value engineering with alternative materials to minimize the business impact.

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2 Negotiate Terms

Once you've assessed the impact, it's time to negotiate with your supplier. Approach them with a collaborative mindset, aiming to find a win-win solution. Discuss the reasons behind the price increase and explore options such as volume discounts, longer-term contracts, or staggered price increments. Effective negotiation can often lead to a compromise that minimizes the impact on your business while maintaining a good relationship with the supplier.

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Hitesh Moliya

Manager - Techno Commercial (Strategic Procurement, Sourcing and Service Contracts) at Adani Kutch Copper Ltd | Ex-LnT
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Follow the BATNA and renegotiate the contract limiting applicability of changes for limited time period / for selected consignment till normalization of situation/reasons inviting for price escalation. Also, relook the sourcing strategy and make appropriate changes i.e. explore alternative, contract with rate benchmarking etc to minimize risk involved.

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Sahil Sharma

Buyer - RM | PM | CAPEX | OPEX
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I would utilize the Salami Technique, though time consuming, this method will allow gradual agreements, reducing resistance and may lead to favourable terms.

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3 Explore Alternatives

If negotiations don't yield the desired results, start looking for alternative suppliers. Research potential candidates that can match the quality and service levels you require. However, switching suppliers carries its own risks and costs, so weigh these against the benefits. It's also an opportunity to reassess your supplier base and diversify, which can reduce future risks and potentially uncover more competitive pricing.

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4 Strengthen Relationships

Building strong relationships with existing suppliers is vital. Regular communication and understanding each other's business needs can lead to better service and more favorable terms. In times of price hikes, these relationships can be leveraged to negotiate better conditions. Additionally, being a preferred customer may give you an edge in discussions and ensure your needs are prioritized.

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5 Review Strategy

Regularly reviewing your sourcing strategy is essential. This proactive approach allows you to anticipate market changes and adjust your strategy accordingly. Keep abreast of industry trends, economic indicators, and geopolitical events that could affect supply costs. A dynamic sourcing strategy enables you to respond quickly to changes, including sudden price increases from key suppliers.

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6 Plan Ahead

Finally, incorporate contingency planning into your sourcing strategy. Establish protocols for dealing with supplier issues such as price increases or supply disruptions. Having a plan in place ensures that you can act swiftly and decisively, minimizing the impact on your operations. This forward-thinking approach will help secure your sourcing strategy against future uncertainties.

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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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Ghazi Zeineddine

Global Category Manager, Indirect / Direct Procurement, Professional Services, Raw Materials, Capex & Contractors Services. My academic background: Masters of Science in Electrical Engineering (MSEE)
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Know you fall back and negotiate hard to maintain the incumbent supplier. In parallel, Launch a new RFP and benchmark the current market. Leverage your findings and let your incumbent know the account is at stake, if no concessions are honored. Carefully align with stakeholders and gradually move your work to the newly vetted supplier. Remember there are many terms that can be negotiated and improved. Try to evaluate the full negotiated Alternative and the annual total $ impact before you sever current supplier’s relationship. I am open to consulting with and my rates are very affordable.

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Your key supplier raises prices out of the blue. How will you adapt and secure your sourcing strategy?

1

2

3

4

5

6

7

1 Assess Impact

2 Negotiate Terms

3 Explore Alternatives

4 Strengthen Relationships

5 Review Strategy

6 Plan Ahead

7 Here’s what else to consider

Supplier Sourcing

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Your key supplier raises prices out of the blue. How will you adapt and secure your sourcing strategy?

1

2

3

4

5

6

7

1 Assess Impact

2 Negotiate Terms

3 Explore Alternatives

4 Strengthen Relationships

5 Review Strategy

6 Plan Ahead

7 Here’s what else to consider

Supplier Sourcing

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