Switching to a New Supplier
The company should not renew the current contract in the first place. It is important to note that aim of the contract is to provide a crucial part in producing the company’s bestselling product, which is now available from a competitor at better terms. In essence, getting the product from the other supplier will enable the company to cut on costs by 30%, hence, making additional profits. This is the motive of any business (Hoogervorst, 2009).
Alternatively, the company may choose to renew its contract with the current supplier but now under new terms. For example, it would require the supplier to reduce the contract price by 30%, thereby, catering for the additional cost that the company would have to incur because of using the supplier’s product. In this case, knowledge of the competitor’s pricing would be crucial in deciding the optimal contract length with the current supplier. For instance, in case, the competitor’s pricing is relatively low taking in mind that its product is more cost efficient, the contract should be short and long if the competitor’s pricing is relatively high and the current supplier agrees to embrace the new technology.
For proper functioning of the market, company’s should be able to identify and switch to suppliers who have better deals for them, and most importantly, who have embraced technology to offer products that would help cut on costs (Hill & Jones, 2009). In return, this encourages a healthy competition among suppliers, which result in improved quality and terms of sale. In essence, the company switching to the vendor will propel the current supplier to innovate and produce products that are less cost- intensive, in order to match the competition.
References
Hill, C. W. L., & Jones, G. R. (2009). Essentials of strategic management. Mason, OH: South-Western/Cengage Learning.
Hoogervorst, J. A. P. (2009). Enterprise governance and enterprise engineering. Diemen: Springer.
