What's new
What's new

Customer wants to cancel order

Sometimes a customer issues a blanket order for a year.
To make it simple 12,000 parts to be shipped 1000 per month.
Six months in they cancel. What to do.?
They only bought 6,000 so that a very different price than 12,000.
If I ran the years worth I am sitting on a lot of parts.
Bob
 
I had the same thing once.
I told the purchasing agent what their "engineer" had told me.
There was a slight gasp on the phone.
Long story short - they paid for the materials plus 5%.
The "engineer" lost his job.
 
I had the same thing once.
I told the purchasing agent what their "engineer" had told me.
There was a slight gasp on the phone.
Long story short - they paid for the materials plus 5%.
The "engineer" lost his job.

Engineers have a pretty common habit of wandering out of their lane if they aren't reigned in. I am quite often redlining drawings and telling them they need to stick with the 'what'. I'll handle the 'how'. That purchasing manager might be quite surprised to find out that the Engineer had wandered into his lane.
 
In this case, I would phone purchasing and ask "why they got an engineer yelling at me that this should have gone to a friends shop and must be cancelled. We've bought material and schedule the job"

you might find its the engineer who gets cancelled.

On cancellations in general, we'll often have customers negotiate cancellation clauses in the deal (mining co's for example for longer term projects).

My view is we'll accept the term (you won't get the contract if its a hard no) but we need to be kept whole.

1) all bona fide 3rd party costs plus mark up (compensates for out of pocket obviously, but the margin on that material helped pay your overhead which are real costs)
2) all hours to date at the shop rate, including engineering, purchasing, receiving
4) 15-20% of the purchase price as a cancellation fee. (if you cancel the day before a 10 month job starts, I've scheduled it and have been turning other quotes and work down and I can't fill the production hole left instantaneously)

So far this has worked, because its reasonable. Only one has every cancelled, but for giant multi year capital projects (of which we're providing a little bit of), I guess they feel at the corporate level they need the flexibility if there's a black swan that means it just must be cancelled. Better to have the terms agreed to than a fight.

As a practical matter, if a customer wants to cancel and is prepared to deal fairly to keep you whole, I don't think you have much choice. Who wants to sue? Then you have to collect and if you do, it might not get any more than the "whats fair" number for a cancellation in any event.

Might even be an idea to slip it in in the standard terms when you quote....if its going to happen, it will happen...at least that way you've defined it in way that is favourable to you.
 
Sometimes a customer issues a blanket order for a year.
To make it simple 12,000 parts to be shipped 1000 per month.
Six months in they cancel. What to do.?
They only bought 6,000 so that a very different price than 12,000.
If I ran the years worth I am sitting on a lot of parts.
Bob

I am not a complete expert in this, but I don't believe the sales contract should not say something like "no cancelation". No cancelation is not a reasonable clause and under many circumstances makes no sense for either party. The contract should instead spell out what happens when a cancelation is requested. For a standard order it might be that the customer will purchase material and pay for the percent of work completed plus 15% up to the full cost of the order. For a blanket order you might have a table that defines the what is due based on when the cancelation occurs. It would be reasonable that the canceling requires purchasing of 3-6 months worth of parts after canceling.

And as others have said, always get a deposit!

If you do a mix of small and big jobs, it also might make sense to to have two sales contracts. One for the small jobs where you want to keep things moving quickly that you use under a certain dollar amount. Then another that requires deposits and an actual customer signature on the sales contract for bigger jobs.
 
I am not a complete expert in this, but I don't believe the sales contract should not say something like "no cancelation". No cancelation is not a reasonable clause and under many circumstances makes no sense for either party. The contract should instead spell out what happens when a cancelation is requested. For a standard order it might be that the customer will purchase material and pay for the percent of work completed plus 15% up to the full cost of the order. For a blanket order you might have a table that defines the what is due based on when the cancelation occurs. It would be reasonable that the canceling requires purchasing of 3-6 months worth of parts after canceling.

And as others have said, always get a deposit!

If you do a mix of small and big jobs, it also might make sense to to have two sales contracts. One for the small jobs where you want to keep things moving quickly that you use under a certain dollar amount. Then another that requires deposits and an actual customer signature on the sales contract for bigger jobs.


Uh, every custom carbide tool I've ever ordered has a "Non cancelable, non refundable" clause on the quote.
 
Uh, every custom carbide tool I've ever ordered has a "Non cancelable, non refundable" clause on the quote.

Yeah, it is super common, but that doesn't mean there isn't a better way. I bet if you call 2 hours after placing the order and ask for it to be canceled, they will do it and be out the time spend to quote and start processing the order. They would be better off saying something like 15% charge for cancelation prior to starting production, 100% charge after production has started.
 
I had a large order canceled. 2,000 parts a month for 2 years at $4.75 per part. Material cost was negligible. I had prototyped the tiny part several times for a hundred bucks each until the design was finalized. Female purchasing agent came up with the price and I told her twice we were not the best people for the job, she insisted. It should have been a fifty cent part.

She canceled 6 months into that job and all prototyping in progress. The worst part was I lost my good relationship with their engineers in prototyping.

This was the second time a female purchasing agent had screwed me over because they didn't have a clue what they were doing. In both cases I let it go without going to their management. I figured no point in pursuing the situations since it wouldn't be a good working arrangement on into the future.

Those situations were examples of how important a good purchasing agent can be to a shop owner. On the other hand I dealt with another PA who changed jobs more often than some people change their underwear. He took me along wherever he went and I stayed with customers when he moved on.

I don't don't know how some people keep from losing it, but I am the guy who got in an argument with a building inspector when getting a shop built. I very well knew I was going to regret what I was going to say, but I could not stop myself.
 
I need to add that.
What if the custom tool just plain does not work? Ever had that?
Bob

Good question, I would think no matter what was in the fine print if the tool doesn't confirm to the drawing it was made from a replacement or a refund is in order. On the other hand look what platers can get away with.
 
Good question, I would think no matter what was in the fine print if the tool doesn't confirm to the drawing it was made from a replacement or a refund is in order. On the other hand look what platers can get away with.

Still a missing step in there. When I was at a place using a decent volume of custom carbide tools we would say “I want a tool that makes X hole in Y material for Z cycles”. The tool vendor would the say “I’m going to make a tool of A material with B coating and it will be shaped like C.” Sometimes tool C does not make hole X. The customer may have bought a tool to the drawing, but the real expectation is that the tool house’s expertise would set that design.
 
Thanks to all who responded. The customer did end up buying the material. It has been a valuable lesson to me and I “got off cheap”. For some more background, the customer was new to me but was a regular customer of a business I knew and I knew that they ordered parts regularly. I did ask for material costs to be paid up front and submitted the invoice and was under the impression that a check was in the mail when I ordered the material. Next time I will be better prepared for these situations. Waiting to get a check and have it clear would have been best, but part of why I had the job was because I promised a shorter lead time in the first place.
 
A bit late at this point, but I wrote this up last week and apparently never clicked the post button. Putting it in anyways for future reference:

I've unfortunately been the customer cancelling the order a few times. Typically it's been my boss changing his mind on something and ordering me to cancel either the order, or my continued employment. Might be a program ending, company being sold, whatever. It's always been:
1. Cost of any materials ordered.
2. Cost of any work completed.
3. Cost of any work in progress/effort put in.

Item 3 is typically phrased in such a way that the supplier can be made whole because it provides a way to work in the cost of quoting, programming, etc. IME, they don't really end up billing for the quoting effort, which is unfortunate.

As for long term blanket orders, it needs to be clear up front who carries the risk. When negotiating them I've often been given two options:

Option 1, PO is for a year, but releases are only weekly, and provided 3 weeks out. The supplier makes about 1 months worth of parts at a time, and ships weekly. Obviously this doesn't get the same price break as having everything made at once.

Option 2, same as the above, but the supplier makes an entire year's worth up front, stores them all, carries the cost, and releases weekly as before. This allows a lower piece price because they all get run at once, but requires a statement in the contract that the customer is responsible for the cost for them even if they decide they don't want them later. It sucks if a quality issue or design change comes up. There also needs to be a time based issue as I've seen auto OEMs try to be clever by dropping the order to 1 per week instead of formally cancelling so that they don't have to pay for the (previously committed) parts on the shelf.
 
...
As for long term blanket orders, it needs to be clear up front who carries the risk. When negotiating them I've often been given two options:

Seen an option 3.
Year blanket shipped as released.
At end of year all not yet released parts are shipped and billed.
Imagine my surprise when 6000 SNR-620 carbide blanks show up on the doorstep.
My bad.
Bob
 
I worked for a shop where the two brothers who ran it were pathological liars......anyhoo,when I went into machinery maintenance ,youd think I would have known better,but I became a customer......And was promised same day service on urgent jobs.....that was lie #1.
 
This was years ago, when I had a real job. The company I worked for agreed to purchase, and signed a PO for about $50k worth of equipment, They changed their mind after the vendor had already ordered the equipment. "My" company, a Fortune 500 subsidiary, cancelled the order.

The vendor sued for breach of contract.

I had to be in court to testify since it involved my department. The vendor's lawyer looked like 3-day old drunk, "our" lawyer looked like he appeared on the cover of GQ.

"We" lost. The judge even awarded damages for willful something or another.

you never know...
 








 
Back
Top