APICS Certified Supply Chain Professional (CSCP) — Question 284

When negotiating with a supplier for strategic components that have high demand variability, which of the following types of contracts would be the best for the buyer to minimize stockouts and unused inventory?

Answer options

Correct answer: B

Explanation

The buy-back contract allows the buyer to return unsold inventory to the supplier, thus minimizing the risk of having excess stock. In contrast, a firm-fixed price contract does not provide flexibility for fluctuating demand, while revenue sharing and sales rebate contracts do not directly address inventory management as effectively as a buy-back arrangement.