The purpose of penalty clauses in purchasing agreements is to . assure the financial stability of the supplier stock inventory at the supplier require the supplier to comply with mandatory cost reduction efforts avoid supplier delivery problem

avoid supplier delivery problem

Explanation:

Supply chain management can be defined as the effective and efficient management of the flow of goods and services as well as all of the production processes involved in the transformation of raw materials into finished products that meet the insatiable want and need of the consumers. Generally, the supply chain management involves all the activities associated with planning, execution and supply of finished goods and services to the consumers.

The fundamental principle of supply chain management is the complete collaboration between multiple firms. These multiple firms include a company that is saddled with the responsibility of manufacturing producer), a wholesaler, and a retailer who typically sells the products to the customers or consumers.

Basically, these three (3) firms or individuals are required to collaborate with each other so as to meet the needs of the customers in a timely manner or fashion and at a fair price too.

A contract can be defined as an agreement between two or more parties (group of people) which gives rise to a mutual legal obligation or enforceable by law.

A penalty clause can be defined as an express provision in a contractual agreement which places an obligation or penalty such as a forfeit or fine, upon the party who has breached a contract by providing compensation to the victim or aggrieved party.

Hence, the purpose of penalty clauses in purchasing agreements is to avoid supplier delivery problem between the producers, wholesaler, retailer and consumers or buyers and sellers.

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