chapter 1 contract management

Question 1

Discuss reasons why contracts would be used in the supply chain

Answer 1

.Reducing work, cost and time
* Legalising the transaction
* Creating long-term relationships
* Reducing lead times
* Providing guidance for responsibilities
* Ensuring quality
* Ensure certainty of supply

Question 2

Identify the various aspects of contract content that need to be managed

Answer 2

1.managing the content of the contract. deliverables , terms , compensation and dispute resolution.
2. managing the contract process.needs , rfq , tender award , signing and conclusion.

Question 3

Explain the importance and elements of deliverables

Answer 3

it is important that questions about what, when, where and how are clearly defined.
How the product should be delivered
* Where the product should be delivered
* Technical norms and standards
* Quantities required
* Delivery times
* How the product will be maintained and serviced by the supplier
* Compliance with health, safety and environmental legislation
* Inspection procedures
* Methods for testing quality to be used by both the supplier and buyer

Question 4

Explain the terms of a contract

Answer 4

There are basically three terms in contracts:Spot contracts , short terms contracts , long term contracts.
Spot contracts
These are purchases that are made on an ad-hoc or once-off basis, usually non- recurring. With spot contracts there is usually little or no intention of developing an ongoing relationship with the supplier.
Short-term contracts
As the name suggests, these contracts represent purchases that are routinely made over a shorter time frame of typically one year or less.
Long-term contracts
Purchases are made on a continuous basis and for a specified or indefinite period of time, usually longer than one year.

Question 5

Explain how compensation can be structured in contracts.

Answer 5

fixed price is the most basic contractual arrangement. With this type of purchase agreement, the price does not change, regardless of variations in economic conditions,competition,levels of
supply or environmental changes.
2.With a long-term contract an
escalation clause can be written into the contract. This becomes known as a fixed-
price contract with escalation. The escalation clause allows for increases or decreases
in the basic price depending on certain circumstances

Question 6

Discuss dispute prevention and resolution steps

Answer 6

1.Set up proper lines of communication during the contract negotiation process to minimize the possibility of disputes.
2. When a dispute arises while using the correct communication lines, the next step might be to refer the problem to formal negotiations between representatives of all the parties involved.
3. If the negotiations fail, the next step is to refer the matter for mediation. Mediation is a voluntary process in which the parties involved in a dispute work with an independent party, the mediator, to generate solutions in settling the conflict.
4. If the mediation process fails, the next step would be either arbitration or litigation. Arbitration is the process of bringing a business dispute before a disinterested third party for resolution. The third party, an arbitrator, hears the evidence brought by both sides and makes a decision.Litigation is the final option available in the dispute resolution process. It takes place in open civil court and the media has free access. This could become a long drawn out process due to the fact that a court date needs to be scheduled which is often a challenging task

Question 7

Discuss the management tasks in managing the contract process

Answer 7

1.planning:plan for new opportunities , anticipate and avoid problems and develop a course of action.
2. organizing: structuring all the activities of the contract or procurement department to ensure smooth operation.
3. directing: execution of the contract.where the physical work start. this is where policies and procedures are discussed before signing a contract.
4. control to make sure that the deliverables are being met.

Question 8

Explain outsourcing and the elements of a service level agreement.

Answer 8

the most important elements of a sla are
1. a performance plan. staff , equipment and staff used is defined.
2. quality monitoring systems to ensure that quality standards are maintained during the process.
3. a personal plan that ensure compliance with employment equity , development and maintaining recruiting and training programs.

Question 9

define what a contract is

Answer 9

an agreement for the supply of goods or services in exchange for payment
at an agreed upon price that is enforceable by law.

Question 10

what are the benefits and risks of long terms contracts

Answer 10

benefits.
1.assurance of supply
2. access to supplier tecnology
3. access to cost or price info.
4. volume leveraging
risks.
1. supplier opportunism
2.selecting the wrong supplier
3. supplier forgoes business
4. buyer is unreasonable.