Value Chain Glossary: Side-selling
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Side-selling
Selling goods to one buyer that have been previously contracted to a different buyer. Side-selling tends to occur when spot-market brokers offer higher prices or more attractive terms than those in a previously contracted agreement with a buyer. Side-selling can lead to a break-down of trust between producers and buyers. Buyers may opt to discontinue relationships with producers who fail to meet contractual agreements as a result of side selling.
Side-selling becomes less of a risk for buyers as value chain governance structures become more coordinated. Tighter relationships, strengthened by embedded services along the chain, make the risk of side-selling and defaulting on contractual supplier agreements less attractive for sellers. Buyers can mitigate the risk of side selling by financing inputs and provide technical services as a means of controling production and ensuring complete, on-time delivery. Such measures tend to move relationships along the governance continuum from arms-length, market structures toward more controlled, captive arrangements.
