Long-Term Contracts
Categories: Company Management
Businesses have these among each other all the time. Think about a lumber yard supplying 2-by-4s to a mega construction company. You can’t build homes if you can’t rely on a steady lumber supply. And lumber usually takes a whole lot of planning so that forests don’t just disappear like a discount visit to SuperCuts.
So Kaufman And Broad might set up a 20-year contract with LumberCo to deliver 4 million board feet of 2-by-4s every year for 2 decades at some pre-set price range, with all kinds of delivery details built into the agreement. That way, both companies can count on each other to think long-term, and hopefully not kill the planet’s oxygen supply in the process.