Choosing a Contract Model in Practice

Abstract

In this chapter, Choosing a Contract Model in Practice, a simple framework for making the transactional versus relational decision is provided. The decision relies heavily on the Sourcing Business Model, a term coined by the University of Tennessee. One of the greatest strengths of the University of Tennessee model is that it identifies the relationship contract model as an essential aspect of a sourcing relationship. The UT Sourcing Business Model Mapping Toolkit first helps an organization “map” their business characteristics of a buyer-supplier relationship across three relationship models. The concept of relationship models stems from Oliver Williamson’s work that classifies an organization’s sourcing needs into three categories: market (transactional models), hybrid (relational/hybrid models), and hierarchical (investment-based models). Throughout the chapter, it is emphasized the dependency and risks are also vital to making the decision.