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LTA is an effective and mostly productive way of planning and procuring goods.
1. LTA allows to lock in the price of procurable materials from a supplier which helps the buyer to portion out the available funds for its remaining cost.
2. It eliminates unpleasant surprises of rise in buying prices. Prices are predetermined where supplier is at risk of increase in their cost price.
3. Both the parties under agreement feel secure for a longer guaranteed period.
4. LTA eliminates un-necessary costs of re-tendering / sourcing and re-negotiating.
5. LTA reduces lot of other burdens of buyers like logistics process and administrative exercises.
5. Both the parties feel secure as long as they have mutual interests under agreement. It eliminates feeling of insecurity with new buyers at every time.
6. Provides opportunities to build better relationships due to increased interaction for a longer period that also increase trust and good faith which helps further to make other future strategic partnerships.
7. Buyer gains time to concentrate on the improvement of supplier's performance and hence increase efficiency.
8. It allows both parties to look for areas of consolidation across existing products and services, as well as the potential addition of potential new product and service offerings.
9. It also save buyer's cost of storage and handling the material.
1- Helps in Budget Planning
2- Ensures Continuous flow for required products without interruption either required as raw material or finished products for direct and/or indirect material and services
3- fix prices
4- save time and efforts consumed in issuing RFQs each time items are needed.
5- enhanced payment terms, delivery terms
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Important Note: Even though LTAs are essential it's highly recommended to survey the market periodically as new products with enhanced quality my emerge and /or new suppliers with probably better prices, terms and conditions, which would leverage the organization to renegotiate signed agreements with current suppliers and/or sign with new ones after proper RFQs/RFPs are issued.
1. LTA are majorly for keeping a trusted supplier under our control who are one of the major suppliers to us.
2. This will support the business to secure the material for us.
3. Purchase contract price can be made stable
4. LTA need to reviewed carefully before its get signed
1.Of Course, it will helps for long term budget planning
2. We will get the maximum discounted price while entering in to Long term agreement.
1- Getting a guarantee of agreed ordered quantitties supply chain.
2- Avoid fluctuation of price change and accordingly,securing the achievement of the agreed margin for this item.
3- Credibility of customer towards the availability of this item on sustainable way.
it depends on the article that is being purchased. A long term agreement is suitable as it gives you benefit of confirmed ordered quantity, less price fluctuation, save time and effort of the team.
LTA helps in Working Capital Management through :
1- Just In Time Purchase thus reducing Inventory Carrying cost
2- Improved Credit Terms for a longer period in case of products with minimum fluctuating prices or for critical items
However it is not true for all types of purchases. So it depends on the best judgement of the person incharge to decide whether to go for LTA or not.
The advantages of “Long Term Agreement (LTA)” are:
· Economies of scale
· It eliminates duplicate yearly supply investigations and purchasing administration efforts.
· It lower prices and total purchase cost
· It affords the buying organisation the opportunity to increase the volume of purchase from the seller, which may adopt JIT supplies to the buying organisation or agree to carry the buying organisation inventory, leading to reduction in the inventory of the buying organisation.
· It affords the seller to know the buying organisation delivery schedule well in advance and reduce distribution and production costs
· In terms of scarcity, the seller assures the buying organisation of a reliable supply
· The buying organisation is also protected against arbitrary and unjustified price increases
· It also affords the buying personnel of the buying organisation, free time for productive work such as supplier management, purchasing research, value analysis etc.
Long Term Agreements are needed to smoothly run operational; Suppliers may have prices that are more competitive, well Inventory, terms and conditions.
LTA will help the SCM to secure the materials on time.
Company may have reducing Cost of procurement role
Long Term Agreement helps in freezing the best cost with supplier and assurance/commitment from supplier for the agreed contract period.
Many Advantages :
- Save cost : by having a long term Agreement with suppliers , you will have a special rates which could make a big saving in procurement budget
- Assure Quality of service : Having LTA will help you to define a clear T&C and KPI's in your SLA's , and will allow the company to control and assure the quality of service provided by service provider .
- Pre qualification :by having LTA , this will help you to qualify your suppliers and will help in appraise their performance
- Assure time of delivery : by having LTA , this will help in control and assure the time of delivery of the service , and this will not possible usually if you did not assign suppliers and pre qualify them .
