Monday, March 5, 2012

Using Supplier Retail Sales Against them In an OEM Negotiation.

Most suppliers will sell their products through a variety of channels. For example that may sell the same product to OEM’s, VAR’s, Authorized Distributors and major retailers. If you are negotiating the contract as an OEM you might want to investigate how those same products are being sold through retailers or ask those questions in the negotiation as a way to counter specific supplier demands.

For example, I had a supplier want to include a high risk use description in our contract with them that would have required my company to indemnify the supplier if the products we purchased were used by our customers in any high risk uses. So I went on line to see how the product was sold by retailers. It was simple. Here’s the cost, here are the shipping and handling charges, here is the applicable taxes, and how many do you want to order. There was no restriction against high-risk use. There was no indemnification requirement. Armed with that information I asked the Supplier if products being sold through retail could wind up in high-risk uses. They admitted they could. I then asked them how they manage that risk. They admitted that they couldn’t. Then I told them that we would never agree to accept a risk and liability that they couldn’t manage on their own. If they don’t require their retail channel to manage it, don’t ask me to manage it because we would have all the same problems managing it that the retail channel would have.

For example in many retail channels it is normal to require the supplier to take back customer remorse returns. They may also require the supplier to take back excess inventory. If you find that a supplier is doing that with their retail channel customers, why shouldn’t you have those same rights as an OEM customer? In reality both of you are doing the same thing. You are both helping the Supplier sell their products to ultimate consumers. Why shouldn’t some of these rights be similar?

I’ve had competitors that wanted to refuse to sell me large quantities of their product that I needed to buy as part of a solution for a customer. Then I pointed out the flawed logic of that decision. I could still purchase the products from one of their resellers. I would cost more, but that cost would be passed on to the customer that specified them. Then I pointed out the flawed part of their logic. If we purchased our volumes through a reseller that would increase the reseller’s discount levels because of the volume. That meant that the remainder of the reseller purchases for that year would be at that higher volume level discount. By not selling to us directly it would cost them more.

While I would like to say that this drove them to agree to sell directly to us it didn’t.
We wound up purchasing from one of their resellers in another country who gave us a good price. They were happy to get the business because they knew that for the rest of their re-sales of that product would be more profitable because of the discounts they would get.The customer was happy as the cost was less than what they could buy it for in their country. The only one that really lost in the transaction was the supplier that said no.

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