This may or may not be a true story, but I promise it happens every year.  We start with the customer organization and a supplier that the customer refers to as a partner supplier. This “partner” supplier collaborates with the customer to develop custom components for a larger system the customer sells to their customers.

This supplier provides a rather complex product and had worked with the customer to develop, and in fact, had amortized some of the development costs into the product cost (per the customer’s desire) to keep the development costs down.  All were in agreement at the start of the development and some of the development costs are to be amortized in the product cost.  This amortization was based upon a volume of product sold per year until the development money was recouped at which time the price would be reduced to the customer. 

Then, due to other changes in the customer organization, the customer decides to change suppliers and develop a new product and replace the present supplier’s product in two to three years.  This cut the present suppliers contract roughly in half.  The supplier does the only thing they can do; raise their price on the remaining production volume to cover the amortized development expenses.  It is simple math.

The customer does not like this “unexpected” increase in product cost and begins to pressure the supplier to reduce the cost.  The supplier continues to explain the situation, justifying their increase in the cost, but the customer organization disagrees, and then work to promptly extricate from the present supplier.  After much cajoling from a contingent internal to the customer, and hand wringing the customer concedes and agrees but only after generating much tumult at both the supplier and customer organizations.

If the customer had succeeded, the supplier (previously referred to as partner supplier) would have taken a great loss. This is not how we should treat our partner suppliers. They have as much right to be in business as we do.  This situation was not so difficult to understand, the math is really elementary.  A company that does not respond rationally based upon the facts, but rather opts for behavior that attempts to extort as a way to renege on a contractual obligation, is acting more like a misbehaving child than a reputable company.