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MASTERCLASS: Managing your supplier relationships

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Hotels rely on good supplier networks to function properly and business can quickly be impacted if any start to break down. Here, Nigel Adams, from London law firm, Goodman Derrick LLP, explains how best to manage supplier relationships effectively.

Contracting with a new supplier

Engaging with a new supplier will be an important decision for your business and so it is worth taking time to make sure you deal with the right one. Where possible conduct research into alternative suppliers to identify those which best match your requirements. To do this you will need to identify what is important to you – for example, do you require reliability above all or is price the determining factor?  

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Once a decision has been reached you will need to reach an agreement by way of a written contract. Larger suppliers may present you with their standard terms and conditions to sign – do not do so unless you have read and understood what their contract says and accept their terms. If you do not like certain terms presented to you, tell the supplier and see if there is any willingness on their part to change them. If there is not, are they the right supplier for you?

If you or your supplier have no standard terms it will be necessary to produce something for you both approve and sign. Supplier agreements vary greatly, but all will contain a core set of terms covering the following matters:

  • A good description of what is to be supplied;
  • Standards of quality for the goods or services to be supplied;
  • Ordering and delivery commitments (including volumes and labelling);
  • Price and payment terms (including any discounts);
  • Liability and dispute resolution; and
  • Duration and termination.

The purpose of your contract is to create certainty – you ought to know what you are getting for your money and what you can do if that turns out not to be the case.

Managing your relationship with suppliers

The key ingredient to any healthy business relationship is communication. Hopefully your suppliers will appreciate this and be keen to get your feedback on their performance (whether good or bad) so they can deal with any issues and/or seek to expand their offering to you. Older supplier relationships can benefit from reviews as much as a new one. If your supplier is not asking you for feedback you should give it anyway. It is important to acknowledge what works well just as much as to identify what is not working, why and how things can be improved.

A relationships with suppliers is a two way street, so ask them for their own ideas on how they might work better for you or if there is anything you can do differently to improve things for them – for example, suppliers might not like have more than one point of contact or being sent ever changing requests.

Reviews can be formal or informal and you will have to decide what works best for you. Whatever level of formality/informality your reviews have, it is important to document in writing (an email will do) any decisions taken. This will help with accountability and also with follow-up as your supplier will need to continue to be monitored.

You must also check your contract to see if any variations to it are required as a result of your review – if they are, you ought to make sure that you comply with any terms which govern how variations to your contract are to be implemented.

How to end a supplier relationship

Sometimes it is necessary to get rid of a supplier, even if you have selected them after rigorous vetting and conducting reviews. Getting rid of a supplier ought not to be done in haste and certainly not until you have:

  • sourced a suitable alternative supplier; and
  • considered your rights of termination (preferably with the benefit of legal advice).

A contract can be terminated if there has been a sufficiently serious breach of contract by the supplier or if a contractual right to terminate exists. Terminating a supplier relationship because of breach of contract is a complex subject which requires a high burden of proof. In most instances it will be easier to end the supplier relationship by following the contractual termination rights.

A good supplier contract will contain express terms dealing with termination so look there first before doing anything else. Normally termination clauses will require you to give notice to your supplier in a specified form and require a specified period of time to elapse before the contract terminates. Failure to strictly comply with such provisions could result in you being in breach of contract to your supplier and liable to it for damages as a consequence, so tread with caution!

If you do not have a written contract with your supplier which contains an express termination clause it is normally the case that the law will in any event allow you to terminate your contract on “reasonable notice”. However, it is not always obvious what that means in practice and you should err on the side of caution and not give a very short period of time before claiming your contract is over.

Contractual termination clauses might require you to either pay any outstanding charges or even perhaps pay other fees or costs as the “price” for termination. Not all such demands for payment are legitimate (even if they appear in your signed contract) and so it is often worth seeking advice on whether such demands are enforceable against you.

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Zoe Monk

The author Zoe Monk

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