Cost allocations, supply contracts

In choosing suppliers to be included in the supply base, the buyer needs to be concerned about not only the transaction costs but also the long term strategic fit. Typically the buyer identifies, evaluates, and contracts with suppliers. Unreliable suppliers, in terms of quality and fulfillment, increase the buyers cost. In many cases, because of the suppliers capacity constraints, the buyer may need to allocate its purchase order to more than one supplier. 

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