These obligations are usually set out in contracts in the form of a Letter of Understanding (LOU) or other form of purchase agreement. Pressure on volume commitments can be particularly punitive for existing customers. For example, imagine an organization that buys $1.5 million in industrial suppliers from a supplier, which is 90% of its total spending in this category. The supplier will contact you and ask you to enter into a contractual agreement with an annual commitment of additional expenses. In order to generate new revenue, suppliers urge their sales teams to present highly competitive contracts with very high volume commitments. Contract negotiations are one-way, and misalignments can be detrimental to everyone involved. During negotiations, a supplier will always push to reach the maximum they believe they can achieve. It`s up to you, as a procurement professional, to counter something you deem more reasonable. This may mean that they forego part of the discount in exchange for a lower volume bond. The key here is to recognize what is best for your organization. . *Selected products and services must be treated exceptionally and may not be available under standard conditions.
Strong relationships with suppliers are important; It`s better to maintain a long-term supplier relationship than to create something for short-term savings that is unstable and harmful after just one year. What would such a quote be? What does the volume purchase contract really mean?. Suppose the buyer commits to increasing his expenses by 20% in the first year, based on realistic forecasts. The purchasing team hits the brand and makes its discounts. However, if the second year is ongoing, the contract provides for an additional 20% increase in addition to the initial 20% increases in expenditures, representing an overall increase of 44% over the original baseline. In the third year, an additional 20% increase is pinned, and the buyer now spends 73% more to meet the requirements of the contract. In most cases, companies do not meet the annual requirements and run the risk of losing their discounts. This Volume Purchase Agreement (this “Agreement”) will be entered into and effective effective as of February 28, 2011 by and between Atheros Technology Ltd., a Bermuda company (“Atheros”) and Aruba Networks, Inc., a Delaware corporation (“Buyer”).
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