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Contracts that Focus on Lowest Price Can Harm Profitability

posted Dec 8, 2011, 12:40 PM by Bryan Berson   [ updated Sep 13, 2014, 6:48 PM ]
Point 4 – End the practice of awarding business on the basis of price tag alone. Instead, minimize total cost by working with a single supplier.” – W. E. Deming

Quality can be defined as “fitness for use.” As members of a supply chain, manufacturers and service providers use materials from suppliers to create products for their users. Each party must receive a product that is fit for use so that it can be processed and meet the next user’s needs. This month’s column focuses on the legal relationship between producers and their external suppliers.

When production is understood as a process, it seems obvious that members of the supply chain should communicate to understand each other’s needs. Within an organization, management can implement policies that facilitate interaction among departments and personnel. The relationship between a producer and an external supplier is governed by contract law.

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