Hidden Costs in Business Contracts

Your suppliers want to help you deliver to customers, but they also need to turn a profit. How do you maintain a strong relationship with suppliers while ensuring both of you benefit?

Your first step should be to take a close look at your purchasing contracts: Shipshape contracts could be the difference between supplier costs eating your budget and keeping your business in the black. The more you can cut unnecessary costs out of your operation, the more resources you’ll have to reinvest into core initiatives.

Here are three reasons you might be paying suppliers more than you need to:

1. Less-than-honest pricing

Suppliers aren’t always transparent about costs, and they aren’t about to tell you what their markup is. They might act like they’re offering you a bargain, but the time, energy, and money spent on working with discount suppliers will add up.
Remember, you get what you pay for — suppliers that cut corners tend to produce inferior products and offer poor service to clients. Don’t be afraid to pay a bit more for a supplier that listens to your needs and delivers a quality product.

2. Superfluous services

You might be paying for services that your company doesn’t need or want. Assess your goals to determine which services actually align with what you’re trying to achieve.

Keep in mind that more face-to-face time typically equals higher prices. If you’re paying for a weekly visit from a representative, you might consider communicating online instead. If your company doesn’t need the additional attention, why have it? More importantly, why pay for it?

Superfluous services such as inventory checks, weekly visits, or call-in ordering can increase your costs by 5 to 10 percent. Let your suppliers deliver the product, and then manage that product yourself once it hits your doorstep.

3. Nontransparent operations

If your suppliers are less-than-transparent about their services, you might not be aware of tricky details that define your relationship and expectations. Don’t be afraid to ask questions of your supplier to ensure you’re getting the best deal.
Does your contract allow you to audit your supplier anytime you want? Are you on the pricing plan for a national account or a local commercial company? Are there other discount programs that you could qualify for? No one wants to give up margin, but these are the questions that need to be on everyone’s minds.
One strategy for ensuring transparent contracts is to partner with a group purchasing organization. The best GPOs provide top-notch service through their authorized suppliers, and they’ll do it without requiring fees or commitments. Forming a relationship with a trusted GPO gives you the power to facilitate recurring purchases or a large one-time transaction.

Take a look at your highest spend categories and your goals to determine which contracts are costing your company the most. Don’t just look at a contract’s sticker price; supplier service, product quality, supplier technology, and the terms of an agreement will all shape your experience and your bottom line.
Whatever suppliers you decide on, make sure they value transparency. There’s nowhere for costs to hide in a transparent relationship. Re-evaluate your purchasing choices if you’re working with suppliers that don’t have your best interests in mind, don’t take the time to learn about your needs, or don’t answer your questions thoroughly.

Strong relationships with quality suppliers could be just what your business needs to reach new heights.

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