How to Avoid Pitfalls in Master Supply Agreements: Procurement Strategies

Updated on: June 17, 2025

For manufacturers, a poorly drafted Master Supply Agreement (MSA) can cost millions in disputes or delays. As a procurement executive, you know MSAs are the backbone of supply chain operations. Yet, 70% of companies face MSA-related challenges due to common pitfalls. This post outlines six strategies to avoid these issues and strengthen your supply chain.

Ensuring Clarity in Master Supply Agreement Terms

One of the most common pitfalls in drafting MSAs is the vagueness in defining terms and conditions. Vague terms cause disputes, disrupting supply chain continuity.

Solution: Ensure that all terms, including definitions of key concepts (e.g., “delivery,” “quality,” ”force majeure"), are clearly defined. Engage knowledgeable people from engineering and legal counsel to review all provisions for clarity and precision, reducing the likelihood of misunderstandings.

Balancing Risk in Supply Chain Contracts

MSAs should balance risk between the supplier and the buyer. Often, one party may bear a disproportionate amount of risk, which can lead to financial exposure and operational vulnerabilities.

Solution: Negotiate terms that distribute risks based on each party’s ability to control or insure against those risks. Include comprehensive indemnity clauses and liability caps proportional to the degree of control each party has over potential losses. In addition, I have seen insurance companies now insist on including a cyber insurance provision in your supplier contracts. See how one manufacturer mitigated risks in our procurement efficiency case study.

Maintaining Regulatory Compliance in MSAs

Regulatory compliance is a critical element that can be overlooked in MSAs. Non-compliance can result in legal penalties and damage to reputation, impacting financial performance and market position.

Solution: Incorporate a robust compliance framework that aligns with both national and international regulatory standards applicable to your industry. Regularly update the terms to reflect changes in laws and regulations.

Defining Supplier Performance Metrics

Without specific performance metrics, evaluating the supplier’s performance becomes subjective, potentially leading to disputes and dissatisfaction.

Solution: Define clear, measurable performance indicators in the agreement. These requirements may include product standards, service level agreements (SLAs), packaging specifications, and shipment requirements. For instance, include metrics like ‘98% on-time delivery’ or ‘zero defects in 95% of shipments’ to set clear expectations. Also, include the consequences of failing to meet these standards.

Building Flexible Supply Agreements

Business needs change, and an MSA that does not account for scalability can limit a company’s ability to adapt to market changes or growth opportunities.

Solution: Include provisions that allow for adjustments in quantities, timelines, and services as your business needs evolve. This might involve renegotiation clauses or tiered pricing structures that reflect different volumes of purchase. Many contracts include provisions to adjust prices based on published, independent commodity indexes.

Streamlining Dispute Resolution in Contracts

Ineffective or unclear dispute resolution procedures can prolong conflicts, strain relationships, and disrupt supply chains.

Solution: Develop a tiered dispute resolution process starting with negotiation, followed by mediation, and as a last resort, arbitration or litigation. Clearly define the steps and timelines for each stage to ensure efficient resolution of disputes.

Conclusion

Master Supply Agreements are critical in defining the relationships between suppliers and manufacturers. As an executive, understanding and navigating the potential pitfalls in these agreements is essential to building robust, efficient, and resilient supply chains.

Strengthen your MSAs with these strategies:

• Ensure clear terms to avoid disputes.

• Balance risks for financial protection.

• Stay compliant to dodge penalties.

• Set metrics for supplier accountability.

• Build flexibility for growth.

• Streamline disputes for efficiency.

In drafting and managing MSAs, always engage with experienced legal and industry experts to align the agreements with your strategic business objectives and risk management frameworks. Have difficult conversations before signing a contract. This

often results in avoiding issues and misunderstandings later.

This approach not only mitigates risks but also enhances the partnership between you and your suppliers, fostering a supply chain that can thrive even in the face of challenges.

Our fractional CPO services can guide you through complex MSA negotiations. Contact us today to learn how we can help.

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