A New Approach to Contracts
Author: David Frydlinger, Oliver Hart, Kate Vitasek
When Dell originally selected FedEx, in 2005, to handle all aspects of its hardware return-and-repair process, the companies drew up a traditional supplier contract. The 100-page-plus document was filled with 'supplier shall' statements that detailed FedEx's obligations and outlined dozens of metrics for how Dell would measure success. For nearly a decade, FedEx met all its contractual obligations-but neither party was happy in the relationship. Dell felt that FedEx was not proactive in driving continuous improvement and innovative solutions; FedEx was frustrated by onerous requirements that wasted resources and forced it to operate within a restrictive statement of work. Dell's attempts to lower costs, including bidding out the work three times during the eight-year relationship, ate into FedEx's profits.
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