Monczka et al. (2002) mentions that contract and contractual terms depend on 1) component market uncertainty, 2)Degree of trust between supplier and buyer, 3) Process or technology uncertainty, 4) supplier's ability to affect costs, 5) total dollar value of purchase. The lesser the uncertainty, as well as the closer the relationship between parties, the more chance of the long-term agreement. The last two factors affect the type of contract, whether fixed-price or cost-based contract is used.
Conclusion
Purchasing has its own role and task in assuring product quality from suppliers in specification of quality requirements, supplier quality audit and the use of appropriate contractual terms in a purchase order. As far as specification is concerned, buyer chooses different type of specifications depending on the characteristic, function and capacity of product as well as the relationship of them. When it comes to supplier quality audit, buyer should consider supplier's equipment, experience, quality system and suppliers' education. Lastly, for contractual term, cash flow of buyer, interest rate, currency, risk and mode of delivery are the main considerations of buyer.
To assure a good product quality, buyer should state clearly the specification of product to its supplier. Besides, supplier should cooperate with its buyers by providing information necessary for them to assess its capacity. Ultimately, for contractual terms, buyers have a proactive role in negotiating with its supplier on the grounds that buyers have much bargaining power. To conclude, purchasing acts as link between buyer and supplier in assuring a good quality of product.
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