Vendor Agreements

by Contract

Vendor Managed Inventory

When it comes to the contract portion or contract piece for consignment inventory or vendor managed inventory you will want your form to include details on how the inventory will be managed both by the Consignee and the Vendor.  Items like storage, replenishment, returns are just a few areas you need to cover.

Before we get too deep into details lets clarify or define the parties typically involved in a consignment transaction. Consignee is the business, person, agent, organization which merchandise is consigned or Consignee is the receiver of the goods not yet owned.  Consignor is the Vendor or company which owns the inventory until it is used or sold by the consignee.  Now that we have that straight, lets move into some areas you should address in your vendor consignment agreement.

Inventory Management

Consignee shall store and manage products produced or supplied by Vendor (the “Products”). All products shall be delivered to Consignee on a consignment basis. Consignee and Vendor shall mutually agree on which Products will be consigned to Consignee under this Agreement before the Products are delivered to Consignee’s Facilities. For purposes of this Agreement, all Products which have been delivered to and received at the Facilities shall be referred to as “Managed Inventory”.

Another piece which will need to be negotiated or identified is where you will store or house the inventory

Space Allocation

Consignee shall store the Managed Inventory at the ________________ (location). Consignee reserves the right to store the Managed Inventory at other Consignee facilities or at a third party warehouse location, provided that it advises Vendor of where the Managed Inventory is located and that it bears all costs associated with relocating the Managed Inventory to the other Consignee facilities.

The next part of the contract will address the inventory levels, costs, returning consignment and obsolescence.

Inventory Level Maintenance

Vendor shall use commercially reasonable efforts to maintain Managed Inventory at each Facility at a level at least equal to Consignee’s sell through rate or usage rate during the preceding two weeks. Once per week, Vendor shall advise the Consignee Product Manager in charge of Vendor’s account of the quantity and type of Managed Inventory that should be consigned to each Facility. The Product Manager shall then issue an order to Vendor for the quantity and type of Product to be consigned (a “Stock Order”). Vendor understands and agrees that a Stock Order (even if the order document is entitled or referred to as a “Purchase Order”) is only a request for delivery of consigned Products to Consignee and is not and shall not be deemed to be a commitment to purchase the Products, except as required under this Agreement. Inventory maintenance can also identify who is responsible for checking bins, refilling bins after warehouse has received goods (checked quantity to packing slip) and managing faster or slower moving bins.

True Consignment

To the extent that Vendor delivers the Products to Consignee or places them under Consignee’s control, this is a true consignment agreement. Vendor shall retain title to the Managed Inventory shipped hereunder until the Managed Inventory is purchased by Consignee at the time of use by the Consignee or sale to its customers.

Buyback of Existing Inventory

Following the Effective Date of this Agreement, Consignee shall provide Vendor with a list of Products, if any, held by Consignee in its inventory on the Effective Date (“Pre-Existing Inventory”). Vendor agrees to repurchase within ten (10) days of such list, any Pre-Existing Inventory that Consignee has previously purchased from Vendor. Vendor agrees to repurchase the Pre-Existing Inventory at the price Consignee paid to Vendor. Any Products in Pre-Existing Inventory for which Consignee has not paid Vendor shall automatically become Managed Inventory for purposes of this Agreement, In the event that Consignee decides to consolidate Managed Inventory into on Facility, Vendor agrees to pay for costs associated with picking, packing and shipping Managed Inventory to the desired Facility.

These are just a few areas you should consider documenting for you vendor managed inventory arrangement. If you are interested in the full or our complete version of our sample vendor agreement, it is available in the Premium, Vendor and Mega Packs.

Vendor Inventory

by ContractVendor

There are many types of arrangements aka vendor contracts you can enter into with your suppliers. If you are looking at employing a partnership philosophy, one to consider is Consignment Buying. What is consignment buying or vendor owned inventory? A definition of vendor owned inventory or vendor managed inventory (VMI) is when a supplier (the company you purchase from) maintains an inventory bank in the buyer’s facility which is under the buyer’s control. The buyer assumes responsibility for perpetual activity or accounting for withdrawals or usage of stock from the consignment inventory, payment for quantities used and notification to the supplier of the need to replenish inventory. Verification of quantities remaining in inventory is jointly done at periodic intervals.

This strategy has advantages for both the supplier and buyer. The buyer benefits by having reduced inventory investment which can free up funds for capital or other investments and the supplier is assured supply or captive volume. This type of partnership arrangement is often used in the distribution industry.

Some of the other benefits the buyer gains is it removes or eliminates the risk of obsolescence. Obsolescence is often overlooked and it is when the inventory no longer meets your requirements and therefore is returned or sold as surplus. Under a consignment arrangement, the Vendor still owns it therefore they assume the risk.

There is a cost associated with tying your vendor into a consignment arrangement. You can be assured that you will be paying more for your inventory vs a spot buy for the same goods but as a business owner you have to weigh the pros and cons and make your decision based on your existing financial and staffing requirements. For some, the opportunity of using your capital elsewhere, eliminating dealing with obsolete stock, managing the inventory surpasses the extra cost incurred or paid for vendor inventory.

What should a consignment contract look like? What should be included? Stay tuned or subscribe to our feed as the next post will answer these questions and provide further insight on sample consignment or vendor managed inventory agreements.

vendor contract

Vendor Contracts

by Contract

 

vendor contractPurchasing managers work with a wide variety of vendor contracts as part of their daily responsibilities, and each one plays a different role in keeping operations running smoothly. These can range from service agreements and consulting contracts to supply contracts, inventory arrangements, blanket orders, equipment or capital purchases, and standing order contracts. While they may look similar at first glance, every contract type has its own purpose, structure, and level of detail. Depending on what you are trying to achieve—whether it’s securing ongoing services, locking in pricing, managing stock levels, or ensuring equipment availability—will help you decide on which type of contract you will ultimately choose.

Service Contract – This vendor agreement might be used for a contract employee providing a specialized service to your organization. The focus of the service agreement would likely be the hours of work, hourly rate and actual service areas this individual would be responsible for. 

Consultant Contract – would imply you are hiring an expert to provide direction on a specific requirement your organization needs direction or support with. Everything from hourly rates to required credentials to the period or term of the arrangement would be identified in this agreement.

Supply Contracts – These are typically used for the supply of bulk consumables or products your business would require on an ongoing basis to ensure continual production. If you are in the resource industry, this might be chemicals, fuels, explosives, lubricants and so on.  In manufacturing, it might be natural gas, coal or whatever powers your facility.

Vendor contracts can be complex and getting a template to help you create something professional can save you many hours of time. Most of the above vendor contracts should address standard clauses like Force Majeure, Termination, Scope, Period, Indemnity, Assignment, Acceptance and so on. Why start from scratch, eliminate frustration and focus your efforts on the specifics.

Some examples we provide include: RFQ9-Chemicals Contract, RFQ51-Lubricants Supply, RFQ53-Reagent Supply, RFQ54-Explosives Supply are just a few of our supply contracts which might be of interest and are available in the Premium and Mega Pack offers.

RFQ4-Service Contract and RFQ21-Engineering Contract will address some of the other Vendor Contracts we have listed above.  For a complete list of contracts in our pack please visit this link.

RFQPro offers a wide range of vendor contracts, each designed to address a specific area of operational responsibility. Any one of these agreements on its own delivers enough value to justify the cost of the entire package.