Dealing with buyer pressure: know the law, and make a stand


Clare Goldsberry wrote an interesting article on what happens when buyers put so much pressure on their Tier 1 suppliers that they end up in a price fixing investigation with the Feds. This is usually simply about money.

But first, a short lesson in contract law. You get an RFQ, and you quote the job. The result is one of three basic purchase orders.

•SPOT BUY - this is a one-time order. The kind a contractor would make with a lumber yard when ordering materials to build your deck.
•CONTINUING ORDER - this is an ongoing order. Actually this is the type of contract you sign with the phone or utility company. You will be billed a fixed amount for a fixed usage without any additional paper work, your payment changes as a function of use.
•ORDER TO ORDER - This is the most common type in Injection Molding. The PO is really only a framework that establishes lot sizes and perhaps annual volumes to lay the foundation of pricing. However there is no guarantee of any business. The customer orders any acceptable lot volume based on this order whenever he wishes. In order to service this contract, somewhere you have agreed to produce parts 'to specification'.
Contract law simply states that if the terms of the contract are not complied with, the contract is broken. This is described as the contract has been breeched (the entire contract, nor just one section). But, if both parties agree to continue; it is mutually agreed 'by actions' that a new standard is acceptable for all future transactions.

Almost all contracts for plastic parts are breeched with the first shipment because it is practically impossible to completely produce parts 'to print' (meaning every dimension on the print, to the exact color, free of defects, etc). However the parts are shipped, and accepted....
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