How to negotiate a supplier agreement

How can you improve supplier agreement negotiations so they're frictionless for everyone involved? We take a deep dive to find out.

We take a deep dive into supplier agreements: what they are, who they affect, how and why parties might choose to negotiate them, and how to improve these negotiations. 

We’re focusing on supplier agreements as the contract used for selling goods, rather than services. Not what you’re looking for? Head over to our deep dives on vendor agreements and SaaS agreements

What’s a supplier agreement? | Who do they affect? | How to approach supplier agreement negotiations | How to negotiate supplier agreements more easily | Useful features | Learn more

What’s a supplier agreement?

Supplier agreements – also known as buy-side agreements – set out the terms of the relationship between a buyer and the supplier. They are similar to vendor agreements, but with a few differences. Vendor agreements tend to be more tech-focused and may involve less communication and relationship-building between the buyer and supplier. 

The supplier agreement is an important touchpoint between both parties. For the supplier, or counterparty, the agreement confirms payment. For the buyer, it is an opportunity to detail the standards they expect when buying this product and allows the business to keep track of spend. 

Who do supplier agreements affect?

Depending on the type of business and contract, supplier agreements may affect a variety of teams, including: 

  • Legal, who are responsible for negotiations and for approving any changes made to the contract. Legal usually owns the contract post-signature too, keeping track of renewal deadlines.

  • Finance, often led by the CFO, authorize the payment and approve the contract before it’s sent back to the supplier.  

  • Procurement, who are responsible for negotiating commercial terms in the agreement. If a business doesn’t have an established procurement team, then this is usually delegated or handled at an executive level.

  • The business stakeholder, who is the person or team directly using the supplies – also known as the customer.

  • Contract managers, who are responsible for managing the agreement after it’s been signed.

Legal or procurement are responsible for keeping track of renewal dates. This admin work prevents them from dedicating time to the tasks that matter 

What’s the manual process?

The supplier generates a contract from a Word template, and emails it to the buyer. Unlike most contracts, there isn’t usually a process for drafting this type of agreement. Negotiations depend on the size of the businesses involved in the transaction, but in cases where they do take place, these are lengthy email chains between legal teams that make it difficult to manage version control and cause friction between teams. 

Negotiations usually take place over multiple systems – from phone calls to internal Slack discussions to emails. This can cause delays and frustration; the business stakeholder wants to confirm the purchase so they can start using the product and often sees legal as a blocker to this. Meanwhile, the supplier wants to close the deal as quickly as possible, and this back-and-forth makes it difficult. 

Eventually, everyone reaches an agreement and the parties sign the contract, either through an eSignature tool or an old-fashioned wet signature. Stakeholders receive a signed copy of the contract for their records. 

The real pain for legal and procurement teams begins post-signature, in managing the contract. Legal or procurement teams are responsible for tracking renewal deadlines, and they do this by manually inputting key information into a shared spreadsheet. Not only is this a huge time drain, but also it isn’t scalable. As the business grows, so too will the volume of contracts – meaning teams will quickly find themselves buried under low-value work. 

To make matters worse, important information isn’t always clear, so finding key details on third-party paper can involve a lot of scouring. In situations where the business misses the deadline and the contract auto-renews, legal or procurement teams are often blamed. 

How to approach supplier agreement negotiations

Imagine contract negotiation as a spectrum, with low-negotiation documents at one end and heavily negotiated agreements at the other. Supplier agreements tend to sit towards the low end of this spectrum, but the level of negotiation will vary depending on the contract value, purchase product and quantity, the companies involved and the skill of the negotiating party. 

A significant variable is the power dynamic between the buyer and the supplier. For example, if the supplier is a multinational corporation, selling a product to an early-stage scaleup, the supplier likely won’t flex on terms.

If we’re looking at supplier agreements as a transaction involving goods (rather than services), then the following terms and clauses are some of those most commonly queried or negotiated:

  • The condition in which the supplier delivers the product

  • Purchase price

  • Delivery dates

  • Contingencies – what happens if goods are damaged in transit, for example

  • Quality standards

  • Terms that remove risk of the transaction

Similar to other contracts, these terms may also be negotiated:

  • Termination rights
  • Auto-renewal 
  • Financial elements, such as interest and exchange rates

Legal are usually involved in negotiating these terms. 

Outline the terms you’re willing to flex on during negotiations. Playbooks are a useful way to do this

How to negotiate supplier agreements more easily

Find a platform with in-browser negotiation

The end-to-end process for supplier agreements usually exists across multiple systems – Word, email, shared drives and eSignature tools like DocuSign. This can lead to increased risk, as changes made in one system might not survive the transition to another. Make sure your contract collaboration platform has in-browser negotiation, so you can create, agree and manage supplier agreements safely and more efficiently.

Define your fallback positions

Outline the terms you’re willing to flex on during negotiations. Playbooks are a useful way to do this. By codifying the information and keeping this in an accessible location, the legal team can empower procurement colleagues to negotiate without legal involvement. Not only will this streamlined process reduce friction between teams, it will also enable other teams to close deals faster.

Use two-way data sync

If the teams handling the contract process live in other systems, why force them to adopt a new platform? Find a contract collaboration platform with two-way integration and real-time data sync, so teams have the confidence to negotiate and manage contracts, from the platforms they know best. 

Experts break down each stage of the contract process in the ‘Modern contract handbook’. Download it for free today.  

Useful features

These features come in handy when improving the supplier agreement negotiation process: 

  • Visual timeline. A full visual timeline and audit trail offers an overview of any activity happening in the contract – from counterparties viewing or making suggestions in the contract, to that glorious moment they actually sign.

  • Internal and external commenting. Parties can collaborate and negotiate in a single version of the agreement, without ever leaving their browser.

  • Full OCR text search. Searching for agreements can be a massive time drain – but with this feature, you can locate documents and key terms with a few clicks. 

  • Slack and email notifications. Make sure you’re in the loop with all negotiations as they happen.

  • Renewal reminders. Never miss a deadline again. This is particularly useful if parties changed key dates during negotiations.

Improve your negotiations with these features, and empower your business to collaborate better on supplier agreements. Problems solved. 

Negotiate faster and better with Juro

Is the supplier agreement negotiation process painful for your business? Does your contract process exist across multiple systems, with limited oversight and a lack of version control?

If so, try Juro for free and enable your business to agree and manage contracts in a unified workspace.

 

Topics: Supplier agreement

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