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14 September 2010 | Helen Gilbert
More than half of buyers responding to the latest SM100 poll have made changes to purchasing agreements after they have been signed.
Of the 100 buyers polled by SM, 61 per cent confessed to making the amendments after they had been signed, compared with 39 per cent who said they had not.
The SM poll follows research on 50 firms by Culina Logistics, which found that food and drinks manufacturers are reporting inefficiencies in their supply chains caused by the cost-cutting measures of retailers.
Manufacturers said retailers were creating inefficiencies by changing their ordering process to make more frequent but smaller stock orders.
Patrick Wolff, senior sourcing officer at Fujitsu UK and Ireland, told SM: “Changes often occur due to a variety of reasons, such as economy, volumes, policy changes, pricing, but more often than not as a gesture of goodwill towards the supplier.“For example, the supplier not noticing (misinterpreting) a specific clause, which once put into action causes unforeseen operational issues,” he said.
Gary Moore, procurement performance manager at BAE Systems Insyte, believes agreements can be changed at any time as long as it is mutually agreed between the parties. “This is generally not controversial if it is to reflect a change to the contractual baseline, to bring it into line with what is actually happening as the project progresses.This is good practice,” said Moore.
“Any other change to the agreement outside of such circumstances is therefore a negotiation to which one party, quite legally, may decide not to enter into. Then it may become an arm wrestle as the relative trading strengths of the relationship come into the equation.”
However, Marc Frankl, senior procurement manager at iTradeNetwork, disagreed. “This is a sure-fire way to create disputes between buyers and sellers and in my opinion is poor practice,” he said.
“If the negotiation is handled correctly both parties fully understand what is expected and the seller will offer the most competitive pricing to a buyer who acts with integrity at all times.”
Natalie Henfrey, a senior consultant at supply chain consultancy Crimson & Co, also argues that well-structured agreements should have the flexibility to adjust to the current market and should be supported by a robust supplier review process where proposed changes and their implications are discussed.
“Suppliers should also be fully aware of the risks they face if the retailer changes the agreement – by modelling the impact on their own costs and supply chain so they can understand potential inefficiencies,” said Henfrey.
“Having mitigation plans in place they will be much better placed to respond to their customers’ needs,” she said.