142021Apr

Volume Commitment Agreement

Minimum obligations as a percentage of total or demand expenditure If commodity prices are high, producers can turn on these agreements with a sigh of relief. They have „reserved“ space on the pipeline and do not have to pay high inruptible rates for capacity. However, as required by the laws of supply and demand, if prices begin to fall due to an increase in the quantity delivered to the market, producers will in turn resume drilling and finishing to obtain capital for a more favourable economic environment. This general change in economic activity will reduce expected output in the short term and put firms at risk of not meeting the minimum requirements they have agreed. Decisions regarding the conclusion of these agreements and the management of production under these contracts involve a large number of management issues: the contract you sign with your reseller service account provider is a legal document. As such, you are bound by its terms. So make sure you understand everything before you sign. If this involves volume commitments, think long and hard about the stability, competition and sales prospects of your business before putting your name on the polka dot line. IT executives who accept minimum commitments should remember that, as always, the devil is in the details. Be aware of the following client conditions, which can be displayed in minimum commitment clauses. If you find them in your contract, read carefully and understand their impact on your bottom line or negotiate on better terms before concluding the outsourcing agreement. This underlines the importance of giving your account provider an accurate estimate of your monthly sales volume. If you are low ball, the dealer will be considered a higher risk.

On the other hand, an exaggeration of your numbers can set you up for commitments that you cannot fulfill. Contract negotiations are a one-way street and misdirection can harm all parties involved. During negotiations, a supplier will always put pressure on the maximum it believes it will achieve. It is up to you, as a procurement professional, to counter something that you think is more reasonable. This may mean abandoning part of the rebate in return for a lower volume commitment. The key here is to see what works best for your organization. Do the minimum obligations associated with a particular service or component start to make you lose sight of it when you try to read the contract with your reseller account provider? While your boredom and confusion are certainly understandable, it is advisable to have a complete idea of the conditions you approve.