The terms of the contractual relationship should not be left only to the contracting, purchasing, or business development functions. The contracting function of a supply chain entity often does not have detailed knowledge of what is required from the company’s engineering function to make a contractual relationship successful and profitable. Management must direct careful attention to the contract negotiation and formation process to ensure that a supply chain contract is profitable and achievable, particularly if the supply chain contract has a research and development or developmental component. Ensure that contract performance adheres to the terms of the negotiated supply chain contract.Ĭonsider All Relevant Perspectives During Contract Drafting.Avoid excessive reliance on standard forms for large or strategically important supply chain contracts.Encourage broad participation in the supply chain contract drafting process.Supply chain disputes often concern relationships that have been in place for years, and affect and involve multiple business functions, including: Once disputes among supply chain participants arise, they can be difficult and expensive to manage. A party may permit this, sometimes for years, before it or the other party becomes dissatisfied with the relationship and then tries to enforce the contract terms as written. It is surprisingly common for engineering personnel to begin product development or manufacture in ways that are contrary to the terms of a supply chain contract, often because they are unaware of the terms. Beginning contract performance without regard to the supply chain contract’s terms.While boilerplate contracts or purchase orders may be appropriate for low-value or commodity relationships, it is usually better to individually negotiate the terms of high-dollar or strategically important supply chain relationships.

Over-relying on standard forms, terms, and conditions, which may contain boilerplate clauses ill-suited to a particular supply chain relationship.Allowing purchasing or contracting personnel to draft supply chain contracts in isolation without input from the operating units within the organization that perform the contract (primarily, engineering and finance), which then must live with the negative results.

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