The “partnering” discussed here, in the steel industry, will refer to a working relationship between supplier and end-user, where benefit is derived by both parties.
One specific example that has been very effective is the blanket order, or blanket contract. Both parties need the potential advantages of a well-constructed blanket contract.
The vendor gets a bit of predictable inventory usage and potential predictable cash flow. The customer will benefit from: continuance of supply, firm pricing, cash flow (often a major concern in smaller mom and pop service centers), time and space savings, etc. When one of these “Partnering Contracts” is done well (fairly), there may even be cost savings to the customer, and increased profit to the supplier. Other benefits do not necessarily relate solely to purchase cost.
At risk for the vendor is default from the customer who’s needs may change during the tenure of the contract. A smaller service center may be concerned with exactly the same thing; a change to their customer’s needs mid-stream.
If you have never been party to a blanket contract for materials, you should be aware that there are certain predictable cautions and time proven verbiage common to most blanket contracts. The text will address standard issues like duration of contract, types of releases (fixed or “as-needed”), etc. Persons with limited familiarity, or who have never entered into a Blanket Order will likely have many concerns relative to over-committing, potential exit clauses, etc. You should know, that similar to any type of contract there must be benefit for both parties. There is no “one-size fits all” contract.
Working with a familiar and trusted vendor and extensive COMMUNICATION will only improve the quality of any joint agreement. Formulate a rough draft of contract terms that express, and address, your concerns. There are no predetermined constraints or requirements that you will be bound to. Ensure the contract terms fit both parties.
In an earlier post, we discussed the definition of, Random Bar Lengths. Many people in this industry assume there is a fixed length spread. Not so. Bar length variances are basically determined by each supplier based on length variances that offer advantages. In appreciation for selling lengths that are the easiest and most economical to ship, a cost advantage is passed along to the customer. Look at a blanket contract in the same way. In your particular situation, what issues provide advantage? Would a good “escape clause” ease your concerns? What about an extended contract period, or releases on demand?
Blanket Contracts for Materials are an excellent form of “Partnering”. They should be viewed as opportunities, not restraints. When discussing “Partnering” be open to compromising on terms that will assist you in perhaps obtaining some “non-standard” terms that you feel strongly about.
The beginning of a new year is a great time to get dialog started.
-Howard Thomas, Jan 2nd, 2020
