This is a memo of understanding (MOU) for Company 1 of Location to purchase Product Name from Company 2 of Location. This MOU is not a purchase order. It defines in general the terms and conditions that apply to purchase orders issued by Company 1 to Company 2 for goods and services and the overall business relationship between the parties. This MOU will begin on Date, Year, and will automatically renew each year thereafter until terminated by mutual agreement of the parties. Terms and conditions of this MOU are given below.
Forecasts and Purchase Orders
A rolling seven-month forecast will be provided to Company 2 by Company 1. In addition, Company 1 will issue firm purchase orders for the first 90 days of its forecasts. Purchase orders for deliveries outside of 30 days may be rescheduled for up to 45 days for a single product’s monthly requirement without cost to Company 1. Reschedules greater than 45 days will be negotiated on a case-by-case basis.
Purchase orders may be canceled by Company 1 contingent upon the following:
Company 1 will be liable for the material and shipping costs for parts purchased by Company 2 to complete Company 1’s purchase order requirements. It is understood that some components used in the manufacture of Company 1’s products may have a lead time greater than 90 days and therefore would not be covered by Company 1’s purchase order. Company 1 will also be liable for these long lead time components to the degree they are purchased to meet Company 1’s forecast requirements. Company 2 will make reasonable efforts to minimize the material cost exposure to Company 1 by following reasonable purchasing practices and by using canceled material on other customer programs and/ or returning materials for credit.
Company 1 will be liable for reasonable nonmaterial costs (exclusive of capacity costs) incurred by Company 2 to complete Company 1’s purchase order requirements.
Pricing and Terms
Payment terms are 1% 10 days, Net 30. The general conditions and terms found on Company 1 purchase orders and on Company 1 Kanban releases shall apply. However, if conflicts exist between this MOU and Company 1’s purchase orders, this MOU will take precedence.
Quality
The expectation is that the products and services Company 1 receives from Company 2 will conform 100 percent to mutually acceptable quality standards. However, Company 1 will evaluate Company 2’s quality monthly, based on incoming receipts and line rejects, and Company 2’s product quality must be maintained at 98.5 percent or better, or part of all of this MOU may be terminated by Company 1.
Nonconformance
Company 1 will notify Company 2 when nonconforming materials are received, and Company 2 will initiate corrective actions immediately and submit a corrective action to Company 1 purchasing within five days. Company 2 will credit Company 1 for the cost of all nonconforming products, including shipping costs, or replace with acceptable quality product within a reasonable time.
Delivery
The expectation is that deliveries of Company 2’s manufactured product to Company 1 will be 100 percent on time. Company 1 will measure and report Company 2’s performance in meeting confirmed purchase order delivery schedules. An unreasonable number of late or disruptive deliveries could result in the cancellation of a purchase order or in the termination of this MOU.
Customer Service
Company 1 will measure Company 2’s performance in providing good customer service to Company 1. Company 2’s customer service should be maintained at a “preferred” rating level as measured by Company 1’s “Supplier Monthly Performance Report” or this MOU could be terminated.
Confidentiality
Company 1’s “Supplier Confidentiality and Non-Disclosure Agreement” shall apply.
Modifications and Product Changes
Any changes to this MOU must be mutually agreed upon in writing by authorized representatives from Company 1 and Company 2.
Company 1 must submit all product change requests in writing using a “Change Order Notice.” Company 2 will then advise any resulting price variances, lead time changes, tooling costs, and so on associated with the change to Company 1 within a reasonable time. If the purchase price of the product changes, the new price will be effective upon the first invoice after the implementation of the change.
If Company 2 recommends a change to the product that results in a purchase price decrease, Company 2 and Company 1 will share the savings and costs to implement equally. Company 2 shall have no obligation or liability for its recommendations.
Company 1 and Company 2 will meet regularly (three to four times per year) to facilitate the business relationship. In addition, both parties will share industry information, manufacturing techniques, trends of relative ideas that could improve the products and services Company 2 provides, and/or the way business is conducted between the companies.
Duly authorized representatives of Company 1 and Company 2 execute this MOU by signing below:
By: _______________ |
By: _______________ |
Name: _____________ |
Name: _____________ |
Title: ______________ |
Title: ______________ |
Date: ______________ |
Date: ______________ |