Partnerships and Unilateral Changes

Partner. Relationship business. It all sounds so good. But then reality slaps you up the side of the head.

In a true partnership, can one company unilaterally change the terms of the contract?

Well, no. But then few espoused partnerships are true partnerships.

The larger company always has more money for lawyers, if it comes to that. The money they use to pay those lawyers may well be yours, which only makes it worse. The smaller company can also have a finger on the trigger. While meeting at high noon in front of the saloon is never the intention, it can happen. That’s why fact-finding and intention-testing up front is a fundamental first step to enabling a trusting relationship to develop.

Automotive has a bad reputation for harming small suppliers because the OEMs feel free to make unilateral demands and contract changes with abandon. Toyota and Honda are well-known exceptions to that and Hyundai has a history of being pretty honorable also. But the “big 3?” Keep your hand on your wallet.

Those are hardly the only companies and automotive is hardly the only industry where the voiced commitment to a partnership that reflects a commitment to relationship is Vanilla Ice.

But small suppliers or customers do not need to be as vulnerable as they often choose to believe and act.

Don’t get sucked in by the allure of business-altering volumes, because they may well alter your business in ways you don’t intend.

Before signing a contract, discuss with the potential supply chain partner scenarios that range from somewhat likely to probable. Ask how they have behaved in the past when those situations have arisen, and then talk with their other partners to see how well the two descriptions match.

You, too, must open the kimono, and share what scenarios have challenged you to comply with your commitments and how you’ve handled those scenarios.

If your large company potential partner has a track record of using its “relationships” to finance its cash flow, or to reduce its cost of goods sold by whatever number its CFO demands by pushing that responsibility down to you, there’s trouble in River City. And that’s trouble with a capital T. Teamwork starts with a very different T.

Every business runs into challenges, sometimes severe. Pretending it won’t happen is silly. Developing a common understanding of how you will treat one another, what kind of actions you’ll each be willing to take if needed to help the other, being transparent about how you each define integrity and ethics — those conversations are fundamental to any opportunity to build a true partnership.

The fear of laying cards on the table indicates a problem from the beginning. Maybe you’ll both be served well by a few short term purchase orders — and yes that can impact costs for both of you — before making the long term agreement.

As Ronald Reagan said about Russia, “trust, but verify.”

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