Supply Contracts - Contracts for make-to-stock/make-to-order supply chains

4 important questions on Supply Contracts - Contracts for make-to-stock/make-to-order supply chains

What is the key-assumption for supply contracts within strategic components?

That the supplier has a make-to-order supply chain. This implies that, in the sequential supply chain, the supplier takes no risk while the buyer takes all the risk. The contracts transfer some of the risk from the buyer to the supplier.

What is the implication with make-to-stock?

In this sequential supply chain, the seller bears all the risk and the buyer bears no risk.

What are pay-back contracts?

In this contract, the buyer agrees to pay some agreed-upon price for any unit produced by the manufacturer but not purchased by the distributor.
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What is a problem with the cost-sharing contract?

It requires the manufacturer to share its production cost information with the distributor; something manufacturers are reluctant to do.

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