Do Detailed Contracts Make for Better Supplier Relationships?

February 15, 2021
Do Detailed Contracts Make for Better Supplier Relationships?

Building a strong relationship with suppliers is important, but in the event of questions or disagreements, we rely on the contract. Any supply chain contract should include these 5 key areas:

1) Protection of confidential information and defining ownership of intellectual property

2) Detailing quality and materials requirements

3) Protection of your intellectual property from counterfeits

4) Promotion of contractual performance

5) How to terminate the contract


Video Spotlight: 


This post is based on the Supply Chain Brain article, Five Key Provisions You Should Have in Your Supply-Chain Contracts, by Hannah Genton, January 10, 2021, and the YouTube videos in the Spotlight. Image source: in-future/iStock/Getty Images

Discussion Questions:

1.  Does a detailed contract, with strong performance standards for the supplier, help or hurt the long-term relationship between supplier and buyer?

Guidance: Students are likely to think an overly specified and stringent contract sets the tone for a negative relationship, as they often have not yet developed the ability to differentiate between personal and professional relationships.

Ask the students what happens when the rules of the road are not clear to all.  What would happen if there were no stoplights or road markings?  Chaos.

Students can then be redirected to see that strong contracts protect both supplier and buyer.  A long-term partnership is more likely if there are fewer disputes going forward as a result of a detailed contractual business relationship.

2.  Quality assurance testing is vital for inbound materials.  How would quality assurance testing of a certified supplier differ from a non-certified supplier?

Guidance: You may want to review what a certified supplier designation means before starting this discussion.

It would seem reasonable for students to consider less quality assurance testing for a certified supplier.  This is not necessarily true.

Certified suppliers are typically designations that allow faster contract sourcing since orders from these suppliers tend to be repetitive over the long run.  This does not imply that quality assurance testing should lessen in frequency or expectations.

This question can help students understand that quality assurance testing remains equally important regardless of certified supplier status, and that certified supplier status relates more to the ability to quickly contract with a certified supplier.

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