A SUPPLY AGREEMENT WITH A ROLL FORMING COMPANY SHOULD LOOK LIKE THIS
The idea behind a supply agreement -- whether with a roll forming company or another manufacturer -- is pretty simple. The supplier provides everything a customer needs for a particular service, and the customer can count on a specified price and single-source service.Everybody wins. Cartwheels ensue.
Of course, these processes are never as simple as they seem at first. Disagreements and misunderstandings can come up. That’s why everything should be spelled out and agreed to up front. Thus the supply contract is born.
A roll forming supply contract is no different from any other, except in the particular supplies covered. So, for the most part, such an agreement can be pretty much a boilerplate document, and there are plenty of models available online. It may also be beneficial to go the DIY route, in which case you should check out our supply agreement tips below.
Whatever you end up doing, just make sure you do something. You have little to gain and everything to lose by skipping a supply agreement:
WHY ENTER A SUPPLY AGREEMENT WITH A ROLL FORMING COMPANY?
If you’re in the business of creating and selling products with outsourced roll formed components, chances are you’ll benefit from a supply agreement. The benefits include:
Cost savings
Reliability
Knowing the specifications of your supply system
Cost Savings
Having a partner who has the ability to maintain an inventory of needed supplies and handle each step of the manufacturing process -- up to and including packaging and delivery -- can reduce production costs and result in discounted prices.
If you buy 1,000 parts from a supplier and your vendor doesn’t know how much you’re going to buy next time, the cost of those parts are going to be much higher. But if you have a supply agreement of, say, 10,000 parts a year, the vendor can base pricing on that. The price can be knocked down even more if it’s a longer agreement, such as 30,000 parts over 3 years.
Your roll former may set up a supply system where it gets discounts from its own raw material vendors based on your anticipated needs.
And it can perform larger runs per cycle of running and hold the immediate-access inventory for you. The vendor won’t do that unless there’s a safety net in place -- in the form of a supply agreement.
Roll formers typically have a similar system in place for raw materials. Combined, these practices all make a more steady supply system instead of a pricey make-to-order situation.
Reliability
A supply agreement puts in writing a promise to deliver a product that meets specifications for a set price. It also includes consequences in case either party fails to meet the terms of the contract.
Under these conditions, a roll former can ship your parts within a day’s notice. The alternative is for a vendor to react every time you place a purchase order. So then you have to wait for your fabricator to find the material and buy it. The price will be less predictable because the roll formed metals market fluctuates so much.
So your lead time can go from 1-2 days with a Kanban system to 3-4 weeks with a pay-as-you-go method.
Knowing the Specifications of Your Supply System
With a supply agreement, the amount of inventory your vendor keeps stays at a predetermined level unless you jointly change it. The vendor also could have limits on how much can be shipped to you per release. The operating agreement should state your vendor will only ship you (x) pieces when your inventory level drops to (x) amount.
Your agreement also gives peace of mind as to how goods will be packaged and what kinds of trucks will be necessary for delivery.
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