Having His Say: A Different Take on Supply Purchase Agreements

I have to disagree with Bill Monk on his comments about supply purchase agreements in the June 6 issue of the O+F Advisor. Ostensibly, Monk reasoned that when evaluating the need to make a capital investment on void-fill machines, one should not blindly go for the promise of a free machine in exchange for buying a supplier's products exclusively. To read that story, click here.

Making a broad statement that supply purchase agreements are bad is like throwing the baby out with the bath water because the bath water is not warm enough. A much better approach is to do an analysis of what your capital costs are and what you are paying in a leasing option. 
Also, to make the contract to company's advantage, be sure to put the following into the agreement:
--Replace all equipment at the end of X years with new equipment. Be sure to find out how many cycles are in a life span of your equipment.

--Lock in 100% service for free other than minor maintenance.  They are going to have to sell the used equipment (see above) at the end of X years.

--With a supply agreement you should be able to lock in the price for the life of the agreement.  I would also set a base line on the consumable so if the price drops the supplier will drop the price by a similar amount.  That logic here is if that your supplier is happy with an X% profit and you're happy paying X dollars, let's keep the relationship in balance. These points should keep you and your company whole through out the life of the agreement.

Dan Zipes is vice president of distribution and compliance for Carrollton, TX-based multichannel marketer Home Interiors & Gifts.