• The customer’s right to break the contract, with the obligation to give written notice and pay
for work done, even in the absence of any breach on the part of the contractor.
• A term to prevent the contractor from transferring the contract for completion by a third
• A term which describes when ownership and risk passes to the client.
• A term stipulating which law governs the contract.
• An arbitration or dispute resolution clause.
Major Japanese manufacturers have for some time encouraged the formation of and participated
in ‘Kyoryoku Kai’ or supplier associations.
Early implementations of this idea were that suppliers were assisted in getting together by the
customer, but the association would then operate without the active involvement of the
customer. However, it is now generally the case that suppliers and their customers participate
together. The idea of supplier associations has, in recent years, been adopted by some American
and European concerns, and seems to be paying dividends. The basic thinking is that companies
with a common interest in meeting the needs of a particular customer can, through the
establishment of channels of communication and regular exchanges of ideas and information,
better develop effective methods of meeting customer needs, with profit for all concerned.
The participants are open and co-operative with each other, and usually work on a ‘self-help’
Figure 8.2 illustrates the principle of a supplier association, with the customer and the member
suppliers freely exchanging appropriate information.
Intra-company purchases/reciprocal trading
Tiering of suppliers
As is obvious from its name, this approach consists of organising supply through different
‘layers’ of supplier, with the immediate or direct suppliers being known as the first tier, with the
second and subsequent tiers each being a stage further removed from the major manufacturer.
Figure 8.4 illustrates the principle.
For many years now, companies have sought to reduce the number of suppliers with whom they
deal. ‘Reducing the vendor base’ was the jargon which accompanied this movement, and for
many organisations this process consisted of simply identifying the better suppliers, trying to
place more business with them, and discarding the rest.
Standardisation and variety reduction are linked to the idea of vendor base reduction; a narrower
range of products bought is likely, obviously, to lead to dealings with fewer suppliers, as well as
other economies. As an example of this policy in action, Volkswagen targeted the avoidance of
replications. Previously, the group used 26 different cigarette lighters in their various vehicles;
they now use five. Formerly, 53 different exterior mirrors were specified; now there are seven.