Supplier Agreement

Supplier Agreement Case

Question A

• Difficulties in the measurement of the cost reductions and the allocation of the partnership benefits between parties.

Y co. argued on the 6% cost reduction clause made by the X co.Y Co bargained that they could reduce the all-in cost to X if they could become the sole supplier in the UK and did more engineering work on the component, as they did in the US.

X will be having problems because raw materials costs are uncertain and often have a large impact on the supplier’s margins.

• Difficulties in defining the boundaries of activities i.e. as to what information needs to be shared.

• Y Co argued that the agreement has lack of mutuality that is the knowledge of Xs cost will only benefit X and not Y.

There is a need to clearly outline and explain the shipping arrangement and costs including the insurance, freight and cartage costs. The insurance costs should also be properly categorized and agreed by X and Y in terms of product liability and general liability.

• Difficulties in demonstrating the benefits of the alliance (some of which were quantitive but not necessarily financial) to senior management.

• Y Company expected a return of 9-10% rather than 5% return by X. In addition pricing mechanism between X and Y such as fixed pricing for a number of period, any discounts for large quantity purchase, payment terms and conditions, price changes.

• X will be facing the basic issue whether the X’s need be fully satisfied and be met by the supplier Y and whether the raw materials supplied by Y are of quality and is certified under the ISO certification.

• X also faces the issue of The raw materials that are supplied by Y need to be properly secured and stored for any mis-management and fraud before being dispatched to X, that is if the raw materials inventory are properly maintained

Question 2

X co. Opportunities

Short Run

• Good profit margin

Long Run

• X can increase its market share by working...