When signing business contracts with suppliers
It is critical to comprehend the entire deal and its ramifications for your company. Knowing the provisions of the agreement will help you focus your talks on items that will benefit your business or project. Saving a few savings while not sacrificing job quality is every project manager's or supplier company's goal when it comes to creating long-term profitability. As a result, pricing and quality become competitive elements to consider when selecting a vendor (Reuer,2014). Besides pricing and quality, it is important to consider the future company projects and align them too with the current so that if possible, you create a relationship with the supplier and negotiate terms that will help in the next project.
Therefore, offering the contact to company B will be of great importance considering the steel company plans to venture in electricity sales in which company B will be a strategic partner.
Although the steel company and company A has deep-rooted relationship having worked together on several projects for a long time, hence company B cannot compete favorably based on the relationship and company's ability to deliver. However, company B has an active record, and through their large account can provide the supplies as requested.
Contract agreement
The steel company should sign a guaranteed-maximum contract with company B. in this contract the steel company would only pay the cost of the work plus a fee to the business and share in the risks to a predetermined maximum price. The steel company stands to benefit should the price be lower. Moreover, the steel company will have an opportunity to gauge the performance of the company B for a future contract.
Risks of working with company B
Dealing with projects and handling of supplies can be demanding and time-consuming hence most companies would prefer to let other companies do the sourcing of services or materials for them, such as in the case of the steel company and company B by entering into a business contract. In doing so, the steel company is likely to face certain risks and rewards of choosing company B (Reuer,2014). The first risk is quality, although the steel company had not worked with the company B before and did not have their generation, their current market review and numerous network across the United States can be relied upon as an assurance to provide quality products and services. Moreover, the company has large accounts hence acquiring and funding other logistics should not be a problem.
Integration difficulties is another risk the steel company is likely to encounter in the transition process since the two companies will be working together for the first time (Reuer,2014).
The development process may require time and financial investment from both parties to facilitate functions such as communications since minor or lack of communication could result in delays and misquotations putting the whole project in jeopardy. However, considering the position of the two companies in the market and company B network across the United States, integration should not be a major problem.
Benefits of working with company B
Despite the risks involved, the steel company by working with company B will acquire valuable benefits which include; minimizing overall costs of the project. By working with the professional organization, company B presents a high level of expertise, knowledge, and connections across the country that can be used to reduce the oval expense of the project. The team can work together to formulate cost-effective plans in logistics areas such as optimization of transportation and better inventory management.
Every business aims to grow towards achieving the set goals and make profits. Therefore, when signing business deals, it is important to consider making new business partners through collaboration even as you keep your current strategic partners.
Different companies offer a unique approach to their activities that other firms can learn from and use to strengthen their weaknesses (Reuer,2014). The steel company in consideration with their future projects, working with company B would present a perfect opportunity to engage the company's ability to meet the product quality, timeline and establish a proper integration that would make working with the enterprise easier in the future.
Managing risks
To reduce quality risk, the team should increase product component standardization. Since company B has a vast network across the United States, they should mix and match different parts from multiple firms. By sourcing the parts from various suppliers, the supply chain would be more flexible and increase response to supply in case of uncertainties.
In facilitation of the integration, the team should create a centralized product data management and communication systems. If the specifications are only known to the supplier, it can be impossible or time-consuming in case of emergency, and the supplier is not around. Therefore, these systems will ensure consultation and continuous supply of the same product by a substitute provider in case of uncertainties.
Reference
Ariño, A., Reuer, J. J., Mayer, K. J., & Jané, J. (2014). Contracts, negotiation, and learning: An examination of termination provisions. Journal of Management Studies, 51(3), 379-405.
