Long-term deals better than shorter contracts, say SM 100

16 January 2008
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16 January 2008

More than three-quarters of buyers prefer long-term contracts with suppliers, according to the latest SM poll.

The survey of 100 buyers found 83 per cent in favour of longer-term relationships, while 17 per cent preferred shorter deals.

Most respondents said providing contracts are maintained and managed properly, having longer-term relationships with suppliers is beneficial to both parties.

"A contract duration that allows performance to be monitored, managed and leveraged, and the relationship worked upon to the benefit of both parties, wins every time over short-termism," explained Gary Moore, strategic procurement manager for Bournemouth Borough Council.

Neil Dixon, purchasing manager at Tetley, said the benefits of long-term contracts include "price and supply stability, the ability to get the supplier properly tuned in to our needs and for us to tune in to their strengths, and the ability to develop products, services or systems".

Arthur Craig, a buyer at panel producer Kronospan, believes long-term contracts have greater rewards, and said they "encourage suppliers to provide added-value initiatives and ideas that may produce greater cost reductions, not just short-term price reductions that result from constantly changing suppliers and contracts".

Consultant Alex Strange agreed. He added: "Long-term contracts allow buyers to negotiate an incentivised contract where savings with the supplier are shared." Jyothi Hartley, project manager at Beacon Purchasing, went further and argued that longer agreements categorise important partnerships: "A longer-term contract is a good way of dealing with key supply partners and differentiates them from the less highly critical categories of supply."

Buyers who preferred short-term deals said they offered simplicity and competitiveness. "The longer a contract, the more robust and time-consuming the legal side of the agreement becomes, as more circumstances have to be envisaged, negotiated and agreed," said Brian Grew, supply chain director at event promotion firm Live Nation. While Tony Morris, category manager at buyingTeam, advised: "If the firm is going to pay little attention to contract management it is better off having a short-term contract."

Other respondents said length is dependent on circumstance: "This is a typical example of horses for courses; the volatility in demand and cost/price elements defines how flexible the contract has to be," said Paul Hooft, project controls and materials manager at engineering firm CB&I.



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