Contract renegotiations are vital for responding to unpredictable developments like shortages, shifts in consumer behavior or shocks like Covid-19, help companies find value in unexpected places, increase efficiency and resilience, and improve supply chain visibility.

There are many reasons manufacturers and distributors may decide to renegotiate their B2B contracts. Perhaps sales figures were much higher or lower than anticipated. Or maybe there was an error in the original contract that prevented companies from getting the most out of their partnership. Over the past year, many companies needed to renegotiate because Covid-19 had such a dramatic effect on markets and workforces.

While renegotiations are vital for responding to unpredictable developments like shortages, shifts in consumer behavior or shocks like Covid-19, companies should take a broader view of how they can be applied. Renegotiations help companies find value in unexpected places, increase efficiency and resilience, and improve supply chain visibility, all of which executives in the sector rank as top concerns.

When partners have the ability to fine-tune their contracts and make adjustments in real time, they can identify and address weak links in supply chains more quickly, set up rebate systems that account for changing conditions, address each partner’s unique needs and ultimately increase revenue.

Contract negotiation is always difficult, as it requires companies to account for a wide range of contingencies and develop terms that both parties accept. These issues only become more complex in times of crisis — forecasting is more difficult, logistics are thrown into disarray and performance is harder to track. To account for all these variables, it’s necessary for manufacturers and distributors to renegotiate contracts — a process that brings companies into alignment on timetables, performance targets and rebates. When companies agree to renegotiate, they’re often in a stronger position to identify problems, implement more efficient processes and maintain healthy interactions with one another.

Contract renegotiation should lead companies to reframe their relationships. By continually reassessing agreements to keep them in line with what’s happening in the real world, companies demonstrate their commitment to the maintenance of productive and resilient partnerships that work for all parties.

The first step toward a successful renegotiation is determining what your partner’s priorities and pain points are, where your interests overlap and where those interests may diverge. The process of developing and implementing contracts can be arduous, and there’s no reason to make it even more difficult by failing to be upfront about issues that will inevitably arise. Partners have to understand one another before they can work together productively, which is why the renegotiation process should be as transparent and collaborative as possible.

While contracts should always be living documents that are subject to change, companies should make sure they’re based on the best available information. This is why forecasting is central to the renegotiation process — companies need to consider factors such as potential shifts in the economic landscape, changing consumer sentiments and new Covid-19 developments to determine which types of contracts make the most sense.

Partners also need to conduct due diligence on one another to avoid any surprises after the new contract has been signed. To keep track of the renegotiation and how it’s executed, partners should use a centralized digital system that will allow them to gather and analyze large amounts of data, adjudicate disputes and avoid the mistakes that are made when companies use outmoded tracking resources like spreadsheets (which, according to my company’s research, over one-third of supply chain professionals still rely upon).

Source: https://www.forbes.com/sites/theyec/2021/09/03/how-contract-renegotiation-can-make-supply-chains-more-adaptive-and-resilient/