Bilateral supply contracts are common even when spot markets are active. The study looks at why this happens for nonstorable commodities. By analyzing how firms negotiate forward contracts, they found that the risk-hedging benefit of forward contracts explains their popularity. Forward contracts don't affect production decisions but do impact inventory choices for storable inputs. The price volatility and correlations play a crucial role in determining the equilibrium contract, with the forward price sometimes decreasing as the initial spot price goes up.