The case describes the contract selection issue by an embedded product manufacturing company towards the procurement of a component. The manufacturing manager is evaluating various procurement contracts. Currently, the company sources the component through a long-term wholesale contract combined with sourcing it from an alternate online platform. The supplier firm has suggested an options-based contract. The manufacturing manager is also planning to discuss buyback-based sourcing contract with the supplier.
Learning Objective (Maximum of 500 Characters): Briefly describes teaching goals of case.
The case illustrates various types of sourcing contracts – long-term contracts at lower unit prices, short-term contracts at high unit prices, options-based contract and buyback contract. The case illustrates how various players in supply chain can be better off by implementing different contracting structures. The case illustrates how options and buyback contracts reduce the risk of supply-demand mismatch.