Certified Supply Chain Professional (CSCP) Practice Exam

What characterizes an ongoing arm's-length relationship?

1. One-time transactions only

2. Long-term exclusive agreements

3. Repeated transactions and medium-term contracts

4. Irregular purchases with no formal agreements

The correct answer is: Repeated transactions and medium-term contracts

An ongoing arm's-length relationship is characterized by repeated transactions and medium-term contracts, which means that both parties engage in regular trade without having a long-term commitment that could potentially compromise the independence or negotiation power of either party. This type of relationship typically allows both the buyer and seller to interact professionally while maintaining their autonomy, thereby fostering fair business practices and competitive pricing. By having frequent transactions, the parties can negotiate terms, pricing, and contracts on a more consistent basis, adapting to market changes and reflecting the dynamics of demand and supply. The medium-term aspect suggests that while there may be a contract in place, it is not so long-term as to restrict flexibility; rather, it allows for adjustment and re-evaluation of the partnership as necessary. This way, both parties retain the ability to re-assess their relationship and seek alternatives if needed, ensuring that the relationship remains beneficial without crossing into exclusive or long-term obligations that could hinder adaptability.