The Strategic Value of a Supplier Agreement—Backed by a Secondary Supplier

In today’s global economy, where tariffs can rise overnight and supply chains are under constant pressure, a supplier agreement is far more than a legal formality, it’s a vital strategy for ensuring stability, mitigating risk, and maintaining cost control. Time and again, I’ve seen companies that lack both primary supplier agreements and secondary supply arrangements face serious consequences when it comes to timely delivery and product rollouts, especially in the pharmaceutical sector.

Real-World Consequences of Not Having Supplier Agreements in Place

1. No Capacity Planning for Key Deliveries

A pharmaceutical company required drug substance and drug product deliveries on a tight timeline as part of a one-off project. The chosen CDMO (Contract Development and Manufacturing Organization), however, had not reserved capacity—prioritizing ongoing projects from other clients instead. Without a formal agreement in place, the pharma client had no recourse.

2. Acquisition Disruptions Without Contractual Protection

One pharma company relied on a CDMO to manufacture its API (Active Pharmaceutical Ingredient) but had no supplier agreement in place. When the CDMO was acquired by a pharmaceutical competitor, the new owner immediately prioritized its own pipeline—canceling existing client projects. The situation worsened because the client had no secondary supplier lined up to step in.

3. Post-Approval Vulnerability

After a drug is approved or an NDA (New Drug Application) is filed, the manufacturer is often most vulnerable. Without a supply agreement, CDMOs can raise prices significantly for validation and commercial batches—and clients are left with no leverage. Standing up a second supplier can take up to two years, making this a costly and risky oversight.

3. Lack of Backup in Quality or Safety Incidents

Even when quality issues or catastrophic events—like explosions—occur (which, unfortunately, does happen), companies relying solely on one supplier may be left without options. If a secondary supplier hasn’t already been qualified and secured, it may be impossible to pivot in time to avoid major disruptions.

Why Supplier Agreements Matter—And How They Add Value

Supplier agreements define clear terms and expectations between a buyer and a supplier. When done right, they go beyond price and quantity, offering strategic protections that help companies stay resilient in uncertain markets.

1. Price Stability and Cost Control

While supplier agreements can’t control government-imposed tariffs, they can offer predictability through fixed or indexed pricing models—shielding businesses from market volatility and allowing better budgeting and margin protection.

2. Risk Mitigation and Business Continuity

Modern supply agreements often include risk-reduction features such as force majeure clauses, alternate delivery routes, and defined lead times. These clauses help ensure continuity when disruptions—such as geopolitical events or port congestion—impact global logistics.

3. Defined Expectations and Accountability

Agreements clarify roles, timelines, performance metrics, and quality standards—reducing the chance of miscommunication or non-compliance.

4. Stronger Supplier Relationships

A formal agreement signals a long-term partnership, encouraging collaboration, communication, and shared commitment. Suppliers may offer added value such as priority production slots or access to innovation..

Bottom Line

A well-structured supplier agreement, paired with a qualified secondary supplier, provides critical protection in a volatile global market. It ensures continuity, manages risk, strengthens relationships, and positions your company for long-term success.