Today’s installment of Whitepaper Wednesday is written by Erick Opdenbosch, SPSM. Please help me welcome Erick as a new contributor to the Purchasing Certification Blog!
Welcome to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I will be reviewing a whitepaper entitled “Contract Life-Cycle
Management: Contract Management Solutions Are Now a Critical Competitive Advantage” from Enporion.
The paper describes why it is important to have good contract management follow up. It is necessary to make sure that all the parties involved in the contract are doing their jobs. In addition to supplier compliance, there is also the operational and regulatory compliance that have to be addressed.
Imagine that after signing a contract, there is no follow up with the supplier. What if the supplier makes adjustments to the delivery times and does not notify the buyer? There is a need to monitor the supplier performance to ensure that the goods or services purchased are delivered and guaranteed as specified. As stated in the whitepaper, “In today’s world, well managed supplier relationships play a critical role in business success and profitability.”
Now, on the other side, there is also the operational compliance. Not only are suppliers held responsible to comply with a contract. The buying organization has to also comply with multiple tasks such as the payment process, design reviews, or certification procedures. And finally, but not less important, there is the regulatory compliance. The whitepaper suggests that the “implementation of a contract management solution will also give you the tools necessary to view and monitor the internal policies and procedures and discover if the intended operational and financial results are being achieved.”
Many of us procurement professionals have heard of the Sarbanes Oxley Act of 2002, better known as SOX. Although it was introduced to reform accounting practices and protect investors, it involves procurement as well. In describing how compliance with regulations can be a major part of the contract management process, the paper focuses on four sections of SOX and how procurement can help in terms of complying with it:
Section 302: Officers of public companies are personally responsible. In other words, the officers of these companies personally guarantee that all financial information is accurate. In procurement, we impact the finances of other areas in the company, hence it is necessary to control the purchasing processes and alert the right person of any current or future financial event that can be characterized as out of the ordinary.
Section 404: Requirement to report on internal controls of financial information. Internal controls will be evaluated on their quality and effectiveness. Purchasing processes contracts that have an impact on the financial statements. Then, it is necessary to compile the information in such a way that it can be accessed by the appropriate person, i.e. Auditors, if required.
Section 409: Timely disclosure of material financial impacts. In the event of a financial impact, the company is required to notify the public within 48 hours. For instance, imagine that there is an unplanned need for a smaller organization to purchase an asset valued at 20 million dollars. This would be considered a big impact, and if it was not reported before, or if it is an urgent purchase, the company has up to 2 days to report it.
Section 802: Altering documents in an attempt to influence legal actions. There will be criminal penalties for those who alter information, even if it is not the signing officer. We, as procurement professionals, should be ethical about all our actions and ensure that documentation is retained.
In Mastering Purchasing Fundamentals, one of the courses that are part of the SPSM Certification, the purchasing process is defined as a sequence of 9 steps. Two of those steps are following up and closing out the transaction. These two steps ensure that both parties comply with contractual obligations and that, if there are provisions that go beyond delivery, these are controlled and made accountable for. Contracts should be followed beyond the point where signatures are obtained.
Should you purchase an application to track contract performance or do it yourself the way you do today? Well, take a look at the whitepaper and find out what better fits you.
-Erick Opdenbosch, SPSM