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How do I get suppliers to honor the terms of our contract?

Posted: 2011-07-05

Full Question

How to get my suppliers to respect the agreed terms and conditions of our contract/purchase order?

Answer

I suspect it is different in every country, but where I am based, in China, I use the following tools to get my suppliers to respect my contract terms-

Contracts are signed in front of a group. Loss of face for breaking one's word is often more effective than fear of legal repercussions.

Some buyers have a general contract in place with the supplier under which various purchase orders are placed. I do it the other way around and each time I place the PO, I have the contract attached and signed off at the same time. My contract defines the relationship in terms of dealing with Intellectual Property, penalty for late orders and such. Since the supplier needs to sign (and "chop") the agreement each time an order is made, he can't look me in the eye and say he didn't remember the terms of the contract.

Perhaps the most important thing I do is to make the contract bi-lingual and easy to understand. Getting my suppliers to understand and agree in person to a set of concepts is much more effective than giving them a 40 page document in US legal-speak that doesn't even get translated by the supplier, let alone reviewed and understood.

I also suggest considering your volume when you select a supplier. I have found if you are a small buyer for a big supplier, your terms and conditions may not be as respected as you would like. I think the sweet spot is to make up about 20-35% of a factory's output.

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