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Judy Taso Essay

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The option contract can be a convenient solution for the buyer when the demand is difficult to predict due to market volatility. This type of contract helps the buyer to reduce the inventory risk and keep good relations with the suppliers, as they both agree to fix a price and adjust orders quantities after the demand have been determined, paying a reservation price that will be lost if the buyer decide not to exercise the option. For the supplier, sometimes can be beneficial, sometimes not, depending on the uncertainty in the demand and how much it cost for them to fulfill orders in shorter periods of time. However, as the buyer must pay a reservation price, the supplier will always be compensated by the additional revenue resultant from the option. …show more content…

Having into account that Konys has been using stable suppliers for years, they certainly might consider signing long term contracts, especially for those products that are expensive and hard to procure like the liquid crystal display (LCD). On the other hand, the option contract could be mutually beneficial to protect against the risk of price increases and fluctuating demand, giving Konys and its suppliers more flexibility to interact and accommodate to the market change. However, as predicting demand is so challenging for short life cycle products, Konys might continue to struggle to meet suppliers and customers requirements. To decide what strategy is better for them, Konys should work to find forecasting methods for products with short life cycle and limited historical data that suits their

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