L3M1 practice question 5 of 10

An arrangement between a buyer and a supplier in which they agree to apportion benefits (such a reduced costs, or increased outputs) arising from particularly sound contract performance may be called:

Full set: 90 questions
Answer options
A: Painshare
B: Stocks and shares
C: Fair share
D: Gainshare Correct answer
Correct Answer:
D. Gainshare
Explanation

Gainshare (or gainsharing) is a contractual mechanism in procurement where a buyer and supplier agree to share financial or operational benefits resulting from superior performance, innovation, or continuous improvement initiatives. Under a gainshare agreement, cost savings or performance gains achieved relative to an agreed baseline are apportioned between both parties according to a predetermined ratio. This arrangement aligns supplier incentives with buyer objectives, promoting collaborative working relationships and shared continuous improvement. Painshare, by contrast, involves sharing financial losses or performance failures.

Why Incorrect

Option A: Painshare is an arrangement where the buyer and supplier share financial risks, losses, or cost overruns resulting from underperformance or unforeseen issues.
Option B: Stocks and shares represent equity ownership units in a commercial entity, rather than a performance-benefit sharing agreement between procurement contracting partners.
Option C: Fair share is a general descriptive phrase referring to equitable division, not an established contractual framework for performance gain distribution.

References

- CIPS L3M1 Study Guide: Procurement and Supply Environments, Unit 3: Contractual Arrangements and Relationships, Section 3.2.

- Lysons, K. and Farrington, B. (2020) Purchasing and Supply Chain Management, 10th edn. Pearson Education, pp. 412–415.

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