In this method, the seller acts as the material planner for the buyer. The buyer concentrates on the costly and critical items but leaves the rest of the items to the systems contractor to replenish as they get to the reordering point. The assumption here is that the seller has been given some idea of the consumption pattern and any change in pattern shall be reported to him. The drawbacks of this system are that the company figures are available to outsiders, thus, is a security concern. Secondly, the company has no control or when the need to regain control arises, they find themselves limited by lack.of knowledge since they are not in touch. Quality effects which occur after a certain period of time are not detected and nipped immediately.
The major objectives of the systems contract are as follows :
- It simplify ordering procedures,
- It improves stocking of repetitively used material,
- It reduces administrative expenses,
- It maintains adequately.controlled service levels, and
- It improves profitability of both buyer and seller, and, at the same time, inspires more confident relationship between them.
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