When entering a new contract with a supplier, be sure to plan ahead by building in enough flexibility to accommodate uncertainty. Some suggested actions include:
- Avoid long-term contracts to allow a contract to end if needs be.
- It’s extremely important to agree on the appropriate Incoterm with your supplier and incorporate it into all new contracts as this will clearly highlight key responsibilities for both parties.
- Customs declarations, tariffs and licenses, and import VAT may lead to additional costs and impose an additional administrative burden, so it’s important to understand the agreed Incoterm and which party is responsible for certain customs elements and the associated costs.
- Include automatic currency-linked price adjustment in the event of large currency movement.
- Define what laws will govern contracts in the future.
- Consider adding break or price adjustment clauses when negotiating new contracts.
Should you wish to secure a new contract there is an internationally recognised approach to help you select the right supplier. The 10C model (by Dr. Ray Carter) consists of 10 core criteria that provide a framework and thought process to enable this critical based decision to be made more effectively.
Our comprehensive article about supply chain and supplier relationships has lots more information, tips for developing successful supply chain relationships and answers questions about what you need to consider when changing suppliers.
