A preferred supplier agreement, commonly known as a PSA, is an agreement between a company and a vendor that establishes a long-term relationship between the two parties. In New Zealand, many businesses opt for PSAs as they offer several benefits such as cost savings, improved efficiency, and increased productivity. In this article, we’ll explore the details of a preferred supplier agreement in NZ and how it can benefit both buyers and vendors.
What is a Preferred Supplier Agreement?
A preferred supplier agreement is a contract between a company and a vendor that outlines the terms and conditions of the business relationship. It establishes a framework that enables the vendor to supply goods or services to the buyer over an extended period. Typically, PSAs are used by companies that have a consistent need for a particular product or service. For instance, a manufacturing company may enter into a PSA with a supplier of raw materials to ensure a steady supply of products.
Key Elements of a PSA
A PSA typically includes the following key elements:
1. Prices: PSAs typically set out the prices that the vendor will charge for their goods or services. The prices are usually lower than the market rate since the agreement guarantees the supplier a steady stream of business.
2. Terms of Payment: The agreement also sets out the terms of payment that the buyer will follow. Typically, buyers agree to pay invoices within a specified period after they receive the goods or services.
3. Volume Commitments: Buyers and vendors agree on a minimum volume of goods or services that the vendor must supply during the term of the agreement. This ensures that the vendor can forecast and plan production to match demand.
4. Contract Duration: The length of a PSA can vary depending on the parties involved. Typically, PSAs range from one to five years.
Benefits of a PSA for Buyers
PSAs offer several benefits for buyers, including:
1. Cost Savings: Buyers can negotiate lower prices with vendors since they are guaranteeing a steady stream of business.
2. Improved Efficiency: By working with a preferred supplier, buyers can streamline their procurement process and reduce the time and effort required to request quotes and negotiate contracts with multiple vendors.
3. Increased Reliability: Since buyers have an ongoing relationship with their vendor, they can rely on a steady supply of high-quality goods or services.
Benefits of a PSA for Vendors
PSAs also offer several benefits for vendors, including:
1. Predictable Revenue: By securing a long-term contract, vendors can predict their revenue and plan their production accordingly.
2. Reduced Sales Costs: Since vendors have an ongoing relationship with their buyer, they can reduce the time and cost of acquiring new business.
3. Increased Loyalty: PSAs establish a long-term relationship between the vendor and buyer that can foster a sense of loyalty between the two parties.
In summary, a preferred supplier agreement is a contract between a buyer and vendor that establishes a long-term business relationship. By entering into a PSA, buyers can enjoy cost savings, improved efficiency, and increased reliability, while vendors benefit from predictable revenue, reduced sales costs, and increased loyalty. If your business has a consistent need for a particular product or service, consider entering into a preferred supplier agreement with a vendor to reap the benefits of a long-term partnership.