The volume commitment initiative can be particularly penalizing for existing customers. For example, consider an organization that buys $1.5 million from industrial suppliers from a supplier, which represents 90 per cent of its total expenditures in this category. They are contacted by the supplier and are invited to enter into a contractual contract with an annual commitment of incremental expenses. These obligations are normally defined under contracts as a letter of agreement (LOU) or in some other form of sales contract. To achieve new sales, suppliers are urging their sales teams to present highly competitive contracts with very high volume commitments. Contract negotiations are a one-way street and misdirection can harm all parties involved. During negotiations, a supplier will always put pressure on the maximum it believes it will achieve. It is up to you, as a procurement professional, to counter something that you think is more reasonable. This may mean abandoning part of the rebate in return for a lower volume commitment.
The key here is to see what works best for your organization. . Source More than 500,000 industrial suppliers for free supplier relationships are important; It is better to have a long-term supplier relationship than to create something for short-term economies that will be unstable and harmful after only one year. . The reasons for the suppliers for advancing these types of contracts are twofold. First of all, it guarantees them more business. Buyers are becoming increasingly dependent on these suppliers because they remain eligible for discounts. This creates a situation in which the supplier takes root in the organization, making it even more difficult for the company to move away from that supplier. Editor`s Note: This article was written by Michael Croasdale, a member of the 2015 Earth Class of 30 Under 30 Rising Supply Chain Stars. Michael was chosen for his passion, creativity and contributions to the supply chain. Volume purchase contracts allow customers to access a wide range of Veritas products at a discount.
Suppose the buyer commits to a 20 per cent increase in spending in the first year based on realistic forecasts. The buying team meets the brand and makes its discounts. However, if the second year rolls, the contract requires an additional 20 per cent increase on top of the initial 20 per cent increase in spending, an overall increase of 44 per cent over the original underlying. In the third year, a further 20 percent increase is expected, and the buyer now spends 73 percent more to meet the contract requirements. In most years, businesses will not meet annual requirements and may lose their rebates. This Amendment No. 2 to the Volume Purchase Agreement (this “amendment”) dates from November 29, 2005 and is introduced by and between Komag USA (Malaysia) Sdn., a Malaysian company with unlimited liability (“Komag”), Komag, Incorporated, a Delaware Corporation (“Komag Inc.”) and Western Digital Technologies, Inc., a Delaware corporation (WDC),