How To Mitigate Costs When Modifying Or Cancelling A Purchase Order

As we covered in the first of this two-part article on Purchase orders, poor supplier performance can result in significant (10-20%) indirect costs. However, by applying certain risk management practices to your operations, you can reduce your risk significantly.

If you've done proper planning and have included the four key supply conditions to protect your company in case of errors and defects, delivery delays, force majeure events and changes in business plans, you've gone a long way to protect your company and minimize any financial or legal headaches.

So, in this second part, we focus on the costs associated with modifying or cancelling a purchase order (PO). What type of costs would you incur if you cancel or modify a PO or cancel a binding supply agreement? And how should you mitigate this cost?