16 There is an incentive in the short run for suppliers to be inefficient in

16 there is an incentive in the short run for

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16. There is an incentive in the short run for suppliers to be inefficient in cost-based contracts because they are rewarded with higher prices. 17. Cost-sharing contracts are especially important during a period when raw material prices are decreasing. 18. To be most effective, cost-based contracts should include cost productivity improvements in order to drive continuous cost reduction over the life of the contract. 20. As the total dollar value/unit cost of the contract decreases, purchasers must spend less effort creating effective pricing mechanisms. 22. Perhaps the most compelling reason to consider a short-term contract, from the buyer's perspective, is that such contracts may reduce the level of risk incurred if longer-term contracts are employed. 23. Long-term contracts can help the buyer to gain exclusive access to proprietary supplier technology.
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26.If suppliers are not forthcoming with labor and material cost data, cost models can be developed to improve the buyer's negotiating position using material/labor ratios available from industry databases.27.Once a long-term contract with a supplier has been executed, it is much more difficult (and expensive) to switch suppliers.28.To be successful, a good contract needs to only consider the needs of the buyer.29.A buyer must focus intently on determining an acceptable initial price because over the course of the long-term contract, the price adjustment mechanism will use the initial price as the base for future adjustments. MULTIPLE CHOICE 1.____ involves spending more time in the initial contracting stages to fully understand stakeholder requirements, expectations, and repeated communication of expectations, in order to gain a full understanding of elements. a.Arbitrationb.Mediationc.Contingency contractingd.Preventive contractinge.None of these choices.
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