To minimize this pressure and costs, many of our customers use our pre-contractual service level agreements – SLAs; price stability over the duration of a contract in the form of an order call contract; a timetable for delivery commitments; the agreed stock; regular inventory tracking reports and post-order warnings. In my last article, « Production Throughput: Inventory Holding Costs & Lost Time Due to Material Shortages, » I discussed how a company can reduce its storage costs through contractual agreements. Today, I thought I would explain how these agreements allow companies to reduce inventory retention costs for longer periods of time. The focus should be on understanding your company`s monthly storage costs and then sharing those costs with your supplier either through a framework order or through a large-scale contract. Therefore, can a company actually reduce its holding costs with the right deal? To meet these requirements, suppliers can reserve mass inventory commitments with their suppliers or manufacturers and try to manage their customers` inventory requirements. Customer loyalty. One of the main risk reduction points is not to extend your purchasing obligations to your suppliers. A fixed customer requirement for a minimum inventory related to one or both of your customer`s minimum requirements and your own purchase deadlines, for example.B. « 90 days of stock commitment, » can be very helpful. Customer demand and storage requirements are known to be unpredictable and, to remedy this, Express Assemblies Ltd offers an action management or call-off contract that allows our customers to purchase goods at an agreed time.
To deal with this risk, the fine print can be decisive. I have seen the importance of certain paragraphs in a supply contract being negotiated hot, » with an inventory worth millions of dollars at stake. Language in the agreement, which addresses the supplier`s concerns, can not only be very useful in the event of a dispute, but also help to avoid it. Termination Terms. Customers want the right to leave at any time, especially in falling markets. Termination rules « for convenience » should not be removed, but should be designed with a minimum inventory requirement in the event of termination to cover your position. It could even be designed as limited to inventory, which cannot reasonably be sold elsewhere. This is a good example of finding the correct, minimally invasive formulation that appeals to both parties. The same applies at the end of the duration of the delivery contract: you may wish for a deadline or accept that your customer remains bound to a minimum stock. Especially in a falling market, there is a risk that customers will buy cheaper products at spot prices and suppliers will have expensive products on hand or on order. Even large suppliers in the distribution chain are cautious or cannot negotiate purchase terms with their upstream producers or suppliers, such as steel mills or other raw material producers, and risk « getting stuck » with the product.
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