By Elizabeth Hilla, Senior Vice President, Health Industry Distributors Association
Elizabeth Hilla
Salespeople like to make customers feel special, so we cut special deals. We write agreements that include exceptions, volume incentives, scaled pricing, freebies – you name it.
So what’s wrong with being complicated? Quite a bit, actually. Even if your company has great systems for keeping up with what each agreement entails, each one still has to be entered into the system and managed. Someone has to make sure that every special benefit is provided and every discount calculated correctly. And your trading partners must do the same. That costs time and money for everyone.
Avoiding unnecessarily complex agreements is a good strategy for almost any salesperson and any company. It’s particularly relevant for anyone negotiating GPO contracts. These deals are complicated enough already. After all, it’s a manufacturer that signs a contract with a GPO, but in many cases it’s the distributor whose invoice must reflect those agreed-upon prices, and the provider who must pay those invoices. Yet neither of those parties actually negotiated the agreement. As a result, figuring out who gets which price and when is seldom a simple task.
When the parties make these contracts even more complex with exceptions, special terms, and so on, they can count on many hours spent on pricing rework by all trading partners. Some examples of practices that can add complications and increase the likelihood of contract administration mistakes include:
- Negotiating prices on the GPO contract that don’t include “freight in” to the distributor. Most prices do include freight, so those that don’t include it must be treated as exceptions. Providers that enter the GPO-negotiated price into their systems are going to be faced with a price mismatch when the invoice arrives, since the distributor will generally have to include that cost in the final price.
- Writing contracts that include exceptions. There are good reasons for manufacturers to write deals that exclude, for instance, certain classes of trade. But these exceptions also add complexity and increase the likelihood of pricing disagreements.
- Too many price tiers. The more tiers there are, the more time everyone spends getting each customer on the right one, and then moving them around based on purchasing volume changes.
When we’re negotiating a deal with a customer or group, we should ask ourselves if the agreement is clear, if the terms are spelled out and all parties can access those terms, and if there are elements that are more complicated than they need to be. If any part of the agreement cannot be automated – entered into a computer system so that all parties get the price and the benefits they expect – chances are we need to figure out how to simplify the deal.