Survey

The inflation rate now seems to be going down. What will you try first to handle new price announcements?

Accept any change.
Negotiate any increase to less than 5% increase.
Shop for a lower cost supplier.
Negotiate to postpone any increase.
Ask for a price reduction.

When to Accept Supplier Mistakes

Date: 04/01/2022

Everybody, as well as every organization, sooner or later makes a mistake. A good buyer needs to tell suppliers about their mistakes so they can be corrected and avoided in the future, but the buyer should not always punish suppliers for every instance of an error. Also, you must be certain about who made the mistake before criticizing. That is not always easy to determine. Often, the responsibility for the problem is shared by several individuals or practices, either the supplier or the buying organization may contribute to a problem.

For example, a buyer may insist on getting delivery on an order even though the lead time is unrealistic. At the same time the supplier may accept or even promise the requested delivery time even though he knows it is almost impossible to meet rather than turn the order down.

The buying organization should keep track of supplier performance. Records of billing mistakes, missed delivery dates, improper specifications, unacceptable quality, and any other problem should be kept. Such records show how frequently errors occur, the severity of the problem, and what is done to correct it. The records are often maintained by a quality control function that combines the various errors wherever they occur.

The buyer must decide what to do when the problem is clearly the fault of the supplier. It depends on the seriousness of the problem, the frequency of occurrence, and the cost of the event. No action may be taken if a mistake is rarely made and the cost is minimal.

Compensation from the supplier is called for when the cost is high. However, even large companies will sometimes absorb some of the cost rather than force the supplier out of business. The amount of compensation can be negotiable and usually there is a compromise.

Of course, the buying organization sometimes may take legal action to obtain some or most of the cost caused by the problem. However, this should be a last resort because legal action is expensive and it is not always successful.