What Is Contract Buying and When Is It Used

Question

Examlex · Accepted Answer

The Answer is Usually a material requirements planning system generates frequent orders for relatively small quantities. This is particularly true for components that are ordered lot- for- lot. It is costly, inefficient, and sometimes impossible to issue a new purchase order for every weekly requirement. The alternative is to develop a long- term contract with a supplier and to authorize releases against the contract. Often suppliers are given a copy of the material requirements plan so they are aware of future demands. The buyer then issues a release against the schedule. This approach is efficient and cost- effective but requires close coordination and communication with the supplier. Contract buying can be managed very well by a planner/buyer.

What Is Contract Buying and When Is It Used

Definitions: