Supply Contracts in the Galbraithian Planning System

Abstract

Galbraith considers that the contract enables the supplier to plan its output and 'to meet the needs of its customers in accordance with their schedule'. [2] Indeed he claims that the contract system ensures response to needs in a way that the price system does not. Thus 'The contract, projecting the buyer's requests for months and years-and specifying prices and termsdoes ensure response'. [3] The situation Galbraith describes is one in which there is mutual benefit. On one hand the buyer is assured of receiving the supplies he needs while on the other hand the supplier is in the fortuitous position of having a guaranteed demand from a customer. In reality the situation would seem to be considerably different. Discussions with suppliers of raw materials and components more often than not produce complaints about the difficulties arising from customers' frequent and unpredictable changes in requirements. For example, the author, in the course of a research project, visited some fifty car component suppliers manufacturing a variety of products including brake systems, tyres, steering gear, electrical equipment, nuts, bolts, and forgings. Without exception the sales staff complained that their customers frequently changed their requirements, both increasing and decreasing them. However, complaints of themselves are not of too much concern unless backed with fairly solid evidence. Therefore, the following four situations which illustrate the problems confronted by one manufacturer of engineering components in dealing with four separate customers are set out in the four following sections. Some general issues arising from these four specific cases are then considered in a concluding discussion.