Annual Rate Contracts: a short guide for buyers
What an Annual Rate Contract is, when it beats repeat RFQs, what to record in it, and how buyers use the agreed rate on every purchase order it covers.
An Annual Rate Contract (ARC) is an agreement with a supplier on the rate for an item over a period, usually a year. Buyers then raise purchase orders against that rate instead of negotiating each time.
When an ARC beats a repeat RFQ
- The item is bought often, in predictable quantities.
- The specification is stable.
- The supplier base is known, and the saving from a fresh RFQ each time is smaller than the effort of running it.
Items that are bought once, or whose specification changes each time, belong in an RFQ.
What to record
- The item, and its unit of measure.
- The supplier.
- The agreed rate.
- The validity period.
- Any conditions the rate depends on.
Making the rate hold
A rate contract only saves money if buyers actually use it. Two things make that happen: the rate applies by default when a buyer raises a PO for a covered item, and the supplier sees the same contract you do.
How SupplierX does it
Record the agreed rate, the validity and the supplier for each item. When a buyer raises a PO for that item, the contract rate applies. Contracts are visible to the supplier on the portal.
See it on your process
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