Common use of FINANCIAL AGREEMENTS Clause in Contracts

FINANCIAL AGREEMENTS. As mentioned earlier, increasing the quality of the information sharing mechanism can increase logistical performance, but suppliers need to be willing to cooperate. Not only to create a sensible information sharing mechanism, but also to act appropriately to all the information that is provided by ASML. As discussed in chapter 6 several suppliers “try not to be the bottleneck”, this possibly leading to an unpredictable reaction to information from ASML and leading to a supply chain that is more difficult to balance and coordinate. As mentioned before the financial risks that several suppliers possibly face, might increase this effect thereby reducing logistical performance. When increasing information doesn’t lead to sufficient increased performance it is a possibility that ASML uses it financial agreements to create more stability. As ASML could make financial agreements that actually reflect what suppliers need to stock and order in order to meet demand, this will lead to more predictable actions from suppliers. The suggestion is that when making financial agreements about orders, the logistical performance needs to be considered as well. The idea is that for products for which logistical performance is important, ASML could agree on a reaction time together with the supplier. This is the time in which the supplier will be reasonable able to react on changing demand. This will be the order time, which is in line with earlier mentioned improvements. For all materials that the supplier needs to buffer in order to be able to react a buffer agreement could be agreed upon for which the risk is shared by both parties to a degree for which it is acceptable for both parties. This is illustrated in figure 10. In this figure The LCZ denotes a limited commitment zone in which part of the commitment of the eventual order is given to the supplier, the FC stands for firm zone in which full commitment is provided. This is a way of working already use by ASML. By making financial agreements about buffers and furthermore actual reaction times are used, the supplier’s performance for these materials will be much more predictable. This way ASML can better balance logistical performance for their main materials. Important is not to increase commitment, but to design it in a structural way throughout the supply chain in order to balance logistical performance. As it is not beneficial for the supply chain to have high commitment at one location, while a bottleneck occurs at another point in the supply chain.