Definition - What does Output Contract mean?
In an output contract, a producer agrees to sell their total output to a purchaser. The purchaser, in turn, agrees to purchase the producer’s total output.
An output contract often involves a purchaser who requires a steady supply for their operations. Output contracts are common in manufacturing, industrial and agricultural contexts.
Justipedia explains Output Contract
An output contract has advantages for both the producer and the purchaser:
- The producer may rest assured that they have found a customer for the producer’s total output. Dealing with only one customer simplifies the producer’s delivery process.
- The purchaser gains access to a large and steady supply of produce. Instead of calculating how much the purchaser gets, the purchaser simply takes all of the output.
An output contract can be advantageous between manufacturers and packagers, or between producers and distribution networks.