Reduce Cost
How do you incentivise suppliers to reduce costs in a cost-plus contract?
Some outsourcing contracts are awarded with a cost-plus model. ie the customer will pay all the costs that the supplier incurs in providing the product or service, plus a percentage of those costs as a profit.
while you can build in some performance incentives through Key Performance Indicators, I haven't yet come up with a true incentivisation mechanism to really drive cost savings by a supplier.
The problem is always that the higher the costs, the higher the profit.
Has anyone come up with or know about a mechanism which can genuinely drive a supplier to want to reduce costs on a cost-plus contract?
Anything that will increase their sales will encourage them - so show how you can increase your volume in the long run if they'll cut their prices now and you're likely to get them listening at least.
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