How to ensure supply meets demand
By Purchasing Staff -- Purchasing, 12/11/2008 2:00:00 AM
Purchasing's smartest negotiators move from conflict to collaboration fast. Match your wits against these pros. Guess their strategy. Then, read what they really did atpurchasing.com/negotiations.
Among the possibilities: Change the material; keep searching for more suppliers; make the material itself. See purchasing.com for the solution.
A major manufacturer was having difficulty sourcing a critical material. There were only a few suppliers, and none of them were able to keep up with the fast-growing global demand for the material.
Problem: the manufacturer was running short of the material, which was endangering its operations. To ensure adequate supply, the company decided to source from one key supplier that had a strategic vision similar to the manufacturer. Knowing that supply and demand for the material was out of balance, the manufacturer included in its proposed contract with the supplier an added incentive: The manufacturer said it would pay two-or-three-times the market price for the material just to be sure of supply. Nevertheless, the supplier refused to guarantee supply. See www.purchasing.com for the solution.
The solution: The manufacturer invested money in the supplier, giving the supplier funds to invest in equipment to help them meet demand. The only condition was that the supplier give the manufacturer first priority. The supplier could retain all the equipment they bought with the manufacturer’s investment. The investment took away the risk for the supplier. The manufacturer got a contract with the supplier for five years, extendable, and got a large price break on the material.
Are you a black belt negotiator? Tell us about one of your negotiation successes, and we'll print it so others can learn from your experience. Send it to pteague@reedbusiness.com.
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