SCM 355 Important Concepts Chapter 14 (Contract Management)
Types of Contracts (Exhibit 14.1 Risk)
Fixed- Price Contracts
Firm fixed price
Escalation-de-escalation
Predetermination
Incentive
Cost-based Contracts
Cost plus incentive fee
Cost-sharing
Time and material
Cost plus fixed-fee
Considerations When Selecting Contract Types (Exhibit 14.2)
Component market uncertainty
Long-term agreements
Degree of trust between buyer and seller
Process or technology uncertainty
Supplier’s ability to impact costs
Total dollar value of purchase
Long-term Contracts
Benefits
Assurance of supply
Access to technology
Access to cost/price information
Volume leverage
Supplier receives better information for planning
Risks
Supplier opportunism
Selecting the wrong supplier
Supplier volume uncertainty
Supplier forgoes other business
Buyer is unreasonable
Contingency elements of long-term contracts
Initial price
Price-adjustment mechanisms
Supplier performance improvements
Evergreen, penalty and escape clauses
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This note was uploaded on 06/24/2008 for the course SCM 355 taught by Professor Pearson during the Spring '08 term at ASU.
- Spring '08
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