Justin Fogarty addressed an excellent question in his October 30 post on supplyexcellence.com. Fogarty addressed the oft raised question of the ethic of renegotiation, specifically during a recession.

While Fogarty raised the question of the ethics of re-negotiation, I left the piece feeling like he hadn’t addressed the ethics issue as much as provide a few options (collaboration, payment terms) to opening up discussions. Options are good, but let’s consider the real controversy.

Ethics, in the most basic terms, are a set of codes or practices geared toward socially responsible behavior. So the key question should be; what is the effect of re-opening negotiations on all of those involved?

Too often, the ethics card is pulled by procurement pros who use it as a device to avoid uncomfortable negotiations. It’s amazing how purchasing teams manage to live in a vacuum when their suppliers rarely raise the ethical question in determining to pass along necessary price increases.

It’s important not to take an adversarial approach to working with suppliers, and the Sourcerer never encourages antagonistic negotiations. Yet it’s equally important to understand the key ethical component at play. Timing is not the issue, businesses are faced with tough choices in good times and bad. Survival should not be the issue, implementing survival measures usually means you took action too late. There should only be one consideration in re-opening contract negotiations.

Procurement teams must ask themselves; are we being responsible business persons by going back to the table? Are we acting in good faith? Short of an agreement to the contrary, it’s difficult to imagine a reason that precludes the right to revisit a contract. While there are potentially negative consequences to the supplier side, we need to remember that a financially healthy client is in every supplier’s best interest. It’s also important to remember the ethics of responsibility to one’s own employer and co-workers weighed against the impact of negotiations on the supplier.

Re-negotiation is sometimes an easy choice and sometimes difficult, but it should be examined as an act of maximum utility. The best business decisions ultimately equate to the best scenario overall. With that Mantra in mind, we protect the interests of shareholders and stakeholders as well as the common good.

Given the current economic climate; are you renegotiating with your suppliers before the end of the contract term?
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