A Rate Contract or a Rate Agreement (RC in short) is an agreement between a buyer and a supplier to obtain products for a fixed unit price or price variation over a specified period of time, as a procurement cost reduction strategy.
[1] A rate contract is usually attempted when a global sourcing effort is not feasible, due to financial or operational constraints.
A rate contract is also typically established in inputs where the number of suppliers is large (where it is not a monopoly or an oligopoly).
Rate contracts can be arranged at various levels by a large firm - in specific geography markets or at a national level or at a global level (if suppliers exist at differing scales) and in specific sub-categories, or in a range of sub-categories, or for a category, or for a related categories.
The level of the rate contract agreed depends on: The process of setting up a rate contract in a category follows a set of standard steps:- Post the setup of a rate contract, a definitive monitoring mechanism must be set up.