Friday, February 11, 2011

Negotiation - Thoughts on Negotiating Approval Over Product Changes, Modifications

Many times Suppliers want to be free to make changes to their products they sell you for their own business reasons. As a Buyer you may want to prevent or restrict such changes because of their potential impact. For example, you may have two components from two Suppliers of the exact same specification and one of them works in your application and the other doesn’t. If the Supplier is free to make changes, the change they make could create a situation where the Product that previously worked in your application no longer works. That can cause huge problems, interrupt your production, etc.  In many products you purchase there may be detailed testing that’s performed to qualify both the product, so you wouldn’t want the Supplier to make changes to what you’ve invested in qualifying.

Suppliers will frequently propose the right to make changes provided that they don’t affect the “form, fit, or function” of the product. There are several problems with form fit and function. First, it doesn’t ensure that it will continue to work in your application. Second, form, fit and function would allow the Supplier to make changes that could negatively impact you or the value of what you purchase as they could significantly cheapen the materials and still meet form, fit and function. This would provide you with a Product that is of lesser value. Form, fit and function also doesn’t address quality, so they could make a product of significantly less quality which still has the same form factor, the same fit and does the same function, but do you want something that’s a lesser quality? The same applies for reliability. Unless you have a specific reliability requirement included in your Specification, if they can make changes to the product, it could impact the reliability of the product once again impacting the value of what you receive for the purchase price and your life cycle cost.

You may also want to limit the process changes the Supplier can make, as every change in a process is a potential quality problem and in most cases the Buyer is the one that assumes the larger portion of the cost impact of quality problems.

If you have significant leverage in the relationship, always try to have approval over all changes. If you don’t have the leverage such as may occur in commodity products, the next best thing is to require that they provide you with advance notice of any changes. This provides you with the time needed to implement strategies to manage the potential risk.  You could purchase of an inventory of the current product to meet your needs until such time as your can evaluate the changed product, or use the time to identify an alternative source.

As with other terms there is a clear link you need to make between control and responsibility. If the Supplier wants to have total control over how the can change their product, you should want them to have total responsibility for the problems and costs that the change causes.  If they don’t want to have responsibility, you need the control so you can manage against the risk.  Having neither leaves you with a risk and potential cost that you have no ability to manage.

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