Track: Supply Chain Management

Abstract

Short-term supply agreements and quarterly pricing based on the log export price are dissuading investment into New Zealand's wood processing, perpetuating the commoditisation of the forest industry and concentrating market risk rather than encouraging adding value onshore and market diversification.

Supply, demand, cost, and revenue uncertainties reduce business confidence and discourage investments. A long-term contract with price adjustment is not a zero-sum game. The transparent information, calculability, steadiness, and time for adjustments across the supply chains provide synergies and advantages for the strategic allies.

To mitigate risks, long-term contracts with price adjustment clauses are frequently implemented in power generation, coal, nuclear, construction, and oil industries. This price adjustment method benefits commodity suppliers and buyers with steady product flow and long payback period capital investments. Beyond cost reduction and productivity, in these lean supply chains, risk mitigation is essential for the entire payback period. Usually, the allies take significant roles in each other's businesses and have a symmetric relationship. Therefore, they want to build long-term partnerships rather than realise one-time gains. That paper introduces the benefits of the abovementioned solution in decreasing risks and improving supply chain resilience and profitability for all parties.