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The Contracting Model

Having a written agreement with your primary supplier is a good idea for a number of reasons:

  • Without an agreement, you are legally bound to the distributors terms and conditions (T's & C's.)
  • The process of contracting is often the only way to gain concessions from a distributor. (Sales reps have little latitude in making concessions.)
  • With the rapid turnover in distributor reps, having a contract is often the only way to ensure you continue to get the offers the prior rep made.
  • Many distributors have generic contracts that they offer to smaller customers.

LPS contract management services give you maximum leverage in vendor negotiations, ensuring you get the best pricing and terms possible.

The Pros and Cons


The Pros

  • - We spend a lot of time and effort negotiating a favorable agreement once every 3 - 5 years.  This way we don't have to spend time negotiating on a day-to-day basis.
  • - We believe that contracts protect us legally from distributors efforts to increase their profits during the term of the contract.
  • - Our distributor has promised in the contract to provide us with cost savings. 
  • - This form of competition is the best way we have to stimulate competition and ensure we are getting a fair price.
  • - If I concentrate all my purchases with a single vendor, I get better prices and terms.
  • - I will be able to get cash loyalty bonuses, prebates and/or rebates by contracting.


The Cons

  • - By contracting every 3 - 5 years, you "take your eye off the ball" and lose the skills and expertise you gain during the contract period.  This leaves you vulnerable to contract manipulation during the term of the contract.
  • - Distributors know the buzz words:  "cost savings,"  "free freight,"  "rebates,"  "growth incentives."  But none of these come easily or without your having to switch to alternate products from those you currently use.  The euphoria of a better deal often causes labs to sign contracts to reap the cash rewards while ignoring what is required to earn them.  Big distributors have teams of lawyers who are paid to ensure contract compliance.
  • - Historically, contracts are "tilted."  You get what looks like a good deal in year one.  But in subsequent years (or when you aren't paying attention) the distributor takes advantage of the fact that you are "locked in."
  • - To get the most out of a contract, all parties submitting a proposal must feel that they have an equal chance at your business.  But everyone knows that incumbent vendors have a huge advantage.  If you have never demonstrated a willingness to change vendors, then do not expect the incumbent distributor to give more than the minimum in a contract.

  

The Contract Buyer and LPS

The first question we will address is if contracting is the right strategy for you?  If the answer is yes, then on a consulting basis, LPS can help you formulate your RFP and evaluate the responses as an expert advisor.

For many of our clients, a better strategy is simply to negotiate a pricing agreement with the primary vendor but skip the costly and time consuming step of pretending that is a true bid with the low bidder assured of an award.  In these negotiations, LPS can provide you with expert advice during the negotiations yielding you a far more favorable agreement than you could negotiate independently.

 

LPS assists the contracting lab manager achieve cost savings by:

  • - Providing data on what price point you should target on hot list items.
  • - Providing advice on what you should ask for in a contract or pricing agreement.
  • - Key "gotcha's" in a distributor contract that you can and should avoid.
  • - How to negotiate from a position of strength.
  • - How to prevent your distributor escalating margins in years 2+ of the contract.

 

The Results

  • - A better contract with far better pricing and terms.
  • - A contract free from restrictions that will limit your ability to purchase from alternate suppliers for the products you require.
  • - A contract that will restrict the distributor from price and profit escalations after the first year of the contract.
  • - The security of knowing that the price you are paying is a “fair” price because it has been verified by an independent 3rd party (LPS)
  • - A contract with the maximum number of benefits and incentives you are entitled to considering the size of your lab.
  • - A new, deeper trusting relationship with a partner who is non-aligned with any specific vendor.

 

How can LPS assist the buyer who believes in contracting with their suppliers? Find out more!