Supply Contracts and Strategic Alliances

Question 1

Main make to order contracts

Answer 1

Wholesale price contract
Buy back contract
Revenue sharing contract

Question 2

Main make to stock contracts

Answer 2

Wholesale price contract
Pay back contract
Cost sharing contract

Question 3

Make to order

Answer 3

Supplier produces after order

Question 4

Make to stock

Answer 4

Supplier produces before order

Question 5

Wholesale pricing contracts

Answer 5

Supplier produces, sells to retailer, sells to customer. Anything left over can have residual value

Question 6

Buy back contract

Answer 6

Producer agrees to buy back goods that are not sold for pre determined price

1. Effective reverse logistics
2. May increase logistics costs
3. Buyers incentive to push competing products

Question 7

Pay back contract

Answer 7

Retailer pays a certain price for each unit that is produced but not bought by the retailer

Question 8

Revenue sharing contract

Answer 8

Supplier lowers selling price for retailer in exchange for a percentage of the revenue

1. Monitoring of buyer’s revenue
2. Increase in administrative costs
3. Buyers incentive to push competing products

Question 9

Cost sharing contract

Answer 9

Retailer shares in the production costs of the producer and can acquire lower selling price from producer
1. Requires sharing production cost information

Question 10

Quantity flexibility contracts

Answer 10

Make to order

Producer buys unsold goods back for the full price up until a certain number of goods

Question 11

Sales rebate contracts

Answer 11

Make to order

Producer pays retailer a bonus for each unit that the retailer sells above a certain quantity

Question 12

Capacity reservation contracts

Answer 12

Make to stock
Retailer reserves a certain capacity for the producer and retailer offers these to consumer. Retailer then buys based on demand and pays premium for reservation

Question 13

Advance purchase contracts

Answer 13

Make to stock
Retailer pays in advance before production. Producer will use different price for each ordered above the ordered quantity.

Question 14

Non strategic products contracts

Answer 14

Non strategic products are essential for companies like paper or wood.
Long term contracts - Fixed contracts for fixed price
Flexible/option contract - Buyer pays small part of price in advance for supplier to reserve capacity. exercise price afterward
Spot market
Portfolio contract (hedging)

Question 15

Arm’s length transactions

Answer 15

Short term agreements e.g. transaction between buyer and seller

Question 16

Strategic alliances + forms

Answer 16

Long term partnership with supplier. e.g. KLM and SkyTeam
Third-party logistics
Retailer-supplier partnerships
Distributor integration

Question 17

Third party logistics

Answer 17

Using external party to perform all or some of SC functions. Enables company to focus on core competencies, however loss of control

Question 18

Retailer supplier partnerships (3 types)

Answer 18

Information sharing between retailer and supplier

1. Quick response - Suppliers receive POS data, inventories ordered by retailer
2. Continuous replenishment - Suppliers receive POS data and prepare deliveries pre agreed upon intervals
3. Vendor Managed Inventory - Supplier full decision making authority over inventory levels of retailer

Question 19

Point of sale data

Answer 19

Real time data generated at the moment a product is sold

Question 20

Distributor integration

Answer 20

Distributors become partners with one another. Share info and work together to optimise service levels
e.g. Toyota integrating distributors