Q & A Table of Contents
Our Sole Supplier's Price Increase Will Hurt Us And Our Customers
From: Tanweer, Islamabad, Pakistan
Question: I have a problem with a supplier who is the sole supplier of our organization. The supplier manufactures various items for us which are used in our product.
Now the supplier is insisting a price increase of about 50 % without any justification. We are a government-owned organization involved in manufacturing several products for our clients -- which are other industrial concerns.
Kindly advise in this regard as we have a limited budget every year for our organization.
Response: The first thing you need to examine is your BATNA, your Best Alternative To a Negotiated Agreement. Among other things, your BATNA tells you what choices you can make to improve a situation.
Is this supplier the only one in your country that can offer all the parts you need? If the supplier makes several elements of your end product, are there some suppliers who also make some of those parts? It may be that you could get better prices from other suppliers of some of the parts.
If that is the situation, you can go to your sole supplier and say that the proposed price increase is troublesome to your company and that if the supplier insists on that increase, you plan to go to as many other suppliers as possible to reduce the amount of materials you buy from the current sole supplier.
It may be that you should also investigate the global marketplace for suppliers of the items you need. Unless a government-owned business is not allowed to acquire materials from outside Pakistan, you may find better deals exist from suppliers in other places.
You need to consider other possibilities as well: Can your product(s) be redesigned so you don't have to rely on the sole supplier for everything they now sell you? Can you manufacture those elements of your products without relying on the sole supplier? Would it be reasonable to ask your customers whether they can propose alternatives to the sole supplier? Could your customers put pressure on the sole supplier by complaining about the increased prices to a government regulatory agency?
Perhaps you should ask your sole supplier how you can explain the increased prices to your customers. How would the supplier feel if its price increase put your organization out of business and thus deprived them of an important customer?
You might let your sole supplier know that you will accept the price increase now, but that you are going to put extraordinary efforts into finding alternatives to them. In other words, their short term profit could harm the long term relationship.
Ask yourself and your colleagues lots of questions. Do careful research before communicating with your sole supplier to learn more about your alternatives. Don't be hesitant about expressing your dismay or -- even -- anger about the price increase. If you simply accept the change without objecting, you are inviting more of the same in the future.
Good luck,
Steve
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