Contract Management: A Key Link in the Supply Chain

I was recently at the World Procurement Congress in London and almost every session, organization and vendor there was focused on improving supply chain management: clearly it’s a key risk and opportunity for most businesses.  But what links all of these suppliers across the globe?  What makes sure that the terms, obligations, regulations, risks and penalties are all well-known and documented? Contracts.  Every link in the supply chain is being held together by a contractual relationship. So when we talk about monitoring, control, value and visibility, I like to go to the contracts first. I think many solutions focus on the logistics of the supply chain but there are risks and opportunities deeper in the contracts.  Here are three quick examples (there are more):

  • Regulated Industries: As governments of the world pass more legislation it is getting harder to name an unregulated industry. Many regulations demand that the prime entity and all of its key suppliers and vendors adhere to certain regulations.  This can be everything from banking regulations, data privacy, Foreign Corruption or anti-terror laws.  Most companies are usually good about making sure these obligations are passed on as “flow downs” to their suppliers. But who in the organization is monitoring that these obligations are adhered to? The EU and US are becomingly increasingly stringent in seeking penalties from defaulters. Traditional supply chain solutions focus on where the money goes and on payment optimization. But there are great risks if the flow downs are not monitored and reported back.
  • Corporate Policies and Image Risk: Most companies have their own policies on ethics in relation to child labor, green sourcing, or other conscientious corporation policies.  Similar to government regulations, these policies need to be passed along to vendors in the supply chain and then monitored and policed. 
  • License Optimization:  If you have a decentralized company there is a distinct risk that global licenses to certain ERP software providers will be bought multiple times by multiple entities in your ecosystem without a clear view of overlap.  This is why we recommend that in any supply chain solution the customer needs to look at not just the nuts and bolts of the licenses but take a global contractual view so as to avoid purchasing redundant licenses. 

Supply chain management is a hot topic and it should be. But proper and full supply chain management needs to look deeper and analyze the contractual links.

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