Supplier Agreements

What is a Supplier Agreement?

A supplier agreement is a legal company contract with your suppliers, defining the terms of the relationship including the rights and obligations of all parties.

A supplier agreement governs the procurement of materials, products or services by your company from a third party for a pre-negotiated price and to be supplied in a certain timeframe.

What should be included in a supplier agreement?

The following points should be included in a supplier agreement:

• Type of materials and products sourced
• Quantity, and quality of the goods/service
• Price and payment terms 
• Confidentiality clauses 
• Delivery time frame 
• Procurement terms and conditions

Types of supplier contracts

• Exclusive Agreement: One supplier has the exclusivity for the supply of raw materials or products
• Non-exclusive Agreement: Multiple suppliers are responsible for the supply of raw materials or products

In addition, there are the following types of supplier agreement:

Purchase Agreement

This is a standard agreement used for procuring goods or services from a supplier. It typically includes terms related to pricing, quantity, delivery schedules, quality standards, payment terms, and dispute resolution.

Master Supply Agreement (MSA)

An MSA establishes the overall terms and conditions that will govern future transactions between the parties. It covers aspects such as pricing, order placement, product specifications, warranties, intellectual property rights, confidentiality, termination, and other important provisions.

Service Level Agreement (SLA)

SLAs are commonly used when engaging suppliers for services rather than physical goods. They outline the specific services to be provided, performance metrics, response times, availability, penalties for non-compliance, and other key performance indicators.

Distribution Agreement

A distribution agreement is used when a supplier grants another company the right to distribute its products in a particular region or market. It defines the roles and responsibilities of both parties, exclusivity or non-exclusivity of distribution rights, sales targets, marketing support, termination clauses, and more.

Manufacturing Agreement

In cases where a company outsources its manufacturing to a supplier, a manufacturing agreement is employed. It covers details such as product specifications, production processes, quality control, pricing, delivery schedules, intellectual property rights, and confidentiality.

Outsourcing Agreement

When a company outsources a specific business function or process to a supplier, an outsourcing agreement is used. It outlines the scope of work, performance expectations, pricing, service levels, confidentiality, liability, transition planning, and termination clauses.

Non-Disclosure Agreement (NDA)

An NDA is a confidentiality agreement used to protect sensitive information that may be shared between the parties during the course of their business relationship. It ensures that the supplier keeps confidential information confidential and refrains from disclosing it to unauthorized parties.

Framework Agreement

A framework agreement provides a general framework for future agreements between the parties. It establishes the terms and conditions that will govern subsequent specific agreements, such as pricing, terms of delivery, quality standards, and dispute resolution mechanisms.

What is the purpose of a Supplier Agreement?

Having an up-to-date and comprehensive collection of all supplier agreements enables your company to:

• Keep track of the performance of your suppliers against their obligations/li>

• Maintain your own compliance against your obligations under those agreements
• Evaluate the cost related to procurement by your company

Why is it important for an event tomorrow?

Having an up-to-date and comprehensive collection of all supplier agreements is important for an event (such as a capital raise or M&A), as it helps:

• Keep a record of your company’s preferred suppliers and understand their share in the overall procurement expenditure
• Understand the share of procurement costs by each product line
• Benchmark your procurement costs against those of competitors
• Evaluate your supplier performance over time
• Assess the impact of any volatility in product or delivery on your business

Benefits of a Supplier Agreement

• Budget for procurement expenses upfront
• Compare the cost of procurement against manufacturing in-house
• Minimise the time and cost of due diligence for company management and potential investors

Cons of not addressing this topic

• Greater potential for suppliers’ obligations to go unfulfilled without penalty
• Greater potential for failure to satisfy your own obligations with your suppliers
• Limited ability to track procurement costs