Certified Supply Chain Professional (CSCP) Practice Exam

What is an annualized contract?

1. A contract for two years at a fixed price

2. A one-year contract that sets pricing

3. A contract that can be terminated anytime

4. A verbal agreement to purchase supplies

The correct answer is: A one-year contract that sets pricing

An annualized contract refers to a one-year agreement that includes specific pricing terms for the duration of that period. This type of contract is structured to ensure price stability and predictability for the buyer, typically providing a clear understanding of costs over the contractual period. The terms often lock in prices for various goods or services, which can help in budgeting and financial planning. In contrast, a contract for two years at a fixed price does not align with the definition of annualization since it exceeds the one-year term. A contract that can be terminated anytime lacks the commitment typical of an annualized agreement, as it does not guarantee pricing or supply for a set duration. Lastly, a verbal agreement to purchase supplies does not constitute a formal contract and lacks the legal assurances and pricing specifications that characterize an annualized contract. Therefore, the identification of an annualized contract as a one-year agreement with established pricing reflects its true nature and purpose in supply chain management.