Contracting in China: A Contract Worth the Paper it’s Written On

This is an excerpt of the original article. It was written for the January-February 2015 edition of Supply Chain Management Review. The full article is available to current subscribers.

January-February 2015

As long as there have been boats and beasts of burden, intrepid business professionals, governments, and marauders have sought fame, fortune, wealth, and value by going global. Think the Phoenicians, Marco Polo, and the Vikings in days of old. Or in contemporary times, think of China, BRIC, EMEA, and other emerging markets. One could argue that outsourcing to China a few decades ago gave birth to supply chain management as we think of it today. This month we’re including an online bonus column from APQC. While this issue focuses on global management, we didn’t want to miss out on the column.

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Supply chain professionals rarely view issues such as counterfeiting, intellectual property, and contracting as supply chain issues. But in today’s economic environment, these can play a crucial role in protecting the integrity and security of global supply chains. This article focuses on one of those issues: the important role of supply chain contracting, using China sourcing as the example.

Over the years, numerous U.S. buyers have been content to purchase from Chinese suppliers without a written contract and with no long-term commitment from either party. We also know of companies that have purchased product from the same supplier for years on a per-purchase-order basis.

This approach is changing, as more and more buyers begin to understand the benefits of establishing long-term, written purchase contracts with their suppliers. There are several reasons why these buyers are beginning to use contracts for their China product purchases.

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