Question

Place yourself, for the moment, in the following scenario: You are a buyer, managing an outsourced software development project in which specifications and requirements may change drastically throughout the project life cycle. Now think of yourself as the supplier in this scenario.

Think about how different types of contracts might be administered within such a dynamic project context. What are the risks? How does supplier performance relate to contract management?

First, imagine you are the buyer. What specific types of contracts do you think will be appropriate in this situation and why? How is the risk distributed among the parties and what are the incentives for the parties to assume that risk? What regulatory requirements need to be considered?

Then imagine you are the supplier. What types of contracts do you think will be appropriate in this situation and why? Who bears the greatest risk? Who should be responsible to remedy the result(s) if risks materialize? How could these risks be mitigated?

Answer 1

External integration can be achieved through various types of cooperation, with suppliers this is generally referred to as buyer-seller relationship. (Fred & John 2007) Most buyers and sellers recognize the need for collaboration as the best way of improving costs, quality, delivery, time and other measures of performance. (Johnson & Fearon, 2006) The following characteristics can define a collaborative buyer-seller relationship. For each purchased material there are a limited number of suppliers; - Long-term contracts with agreed performance targets; - Mutual benefits and sharing of rewards; - Joint efforts to improve supplier performance across critical performance areas; - Join efforts to resolve disputes; - A credible commitment to work together during difficult times – which means that neither party returns to old practices at the first sign of trouble; - A commitment to high quality, defect-free products with design specifications that the supplier’s process is capable of meeting. No matter how high or well-structured the collaboration with a supplier is, there will always be conflicts which are an inevitable part of trade, especially in a big company. The company does highlight finding the root cause of each conflict but a higher emphasis is put on how to resolve the issue and ensure it never happens again. Supplier performance has a great impact on the productivity, quality and competitiveness of the company and the Procurement department is aware of this. Big companies’ inclinations to buy, to outsource, to improve quality, to lower stock levels, to integrate supplier and purchaser systems and to create cooperative relations such as partnerships have underlined the need for outstanding supplier performance. In general, flexibility and customer service in the supply chain became very important. Flexibility refers to the ability of making available the products or services to meet the particular customer demands. Flexibility is a key measure of supply chain performance and is often regarded as a reaction to environmental uncertainty. (Gunasekaran et al., 2001) Although advances in practice and theory have contributed to enhanced knowledge of buyer-seller relationships, the discipline is far from mature. More effective buyer-seller relationships help both parties manage uncertainty and dependence, increase efficiency by lowering total costs, and enhance product development and market orientation through better knowledge of customers and their needs. To realize these benefits, more big companies manage to interrelate and conduct relationships with customers and suppliers to achieve effectively the diverse objectives and outcomes possible from each relationship.