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On the heels of a long week and a long weekend, I’ll keep this final article on compliance short and to the point (click to read the two preceding articles, Support Your Local Maverick and Showdown at Compliance Corral). Spoiler Alert…… Compliance is good.
In much the same way that laws and rules set order to our normal life, supplier contracts set order to an enterprise’s buying life and to its trading partner relationships. If a law has been established, we know that resources have been invested in passing it and that resources are invested in enforcing it. Citizens may not like the law or understand why it exists – i.e. Why can’t I buy beer on Sunday? – but that is beside the point (in general). Citizens have three choices (1) Comply with the law (2) Break the law and pay the penalty if caught (3) Work to change the law.
Similarly, we know that when a contract has been executed with a supplier, some level of resources have been invested by the enterprise to establish a relationship with that supplier and agree upon the delivery of some goods and/or services with defined terms, pricing and service levels; Resources should be invested in enforcing it. Employees may not understand why certain suppliers are preferred or why there are restrictions on what and how they can buy things. While procurement certainly benefits if the supplier/category/contract decisions that are made are logical and easily explained, every employee doesn’t need visibility into contracting decisions. Employees have three choices (1) Comply with the policy (2) Break the policy; whether the employee is caught or not, the enterprise pays a penalty (up to 20% on the non-compliant spend) (3) Work to change the policy and/or request an exception.
Contract compliance is an important metric to be tracked and audited on a regular basis. If compliance is low or not improving, something is wrong and action is required should be taken to identify the cause. Policies can change so can preferred suppliers; most indirect contracts do not contain a guaranteed or minimum quantities. Procurement should be the enforcer but it must also be reasonable and adaptable – like a good parent (“Procurement Knows Best”).
To paraphrase Gordon Gekko’s view on greed –
“The point is ladies and gentlemen, that compliance, for lack of a better word, is good. Compliance is right. Compliance works. Compliance clarifies, cuts through, and captures the essence of the buying spirit. Compliance, in all of its forms; compliance to contracts, to process, to regulation has marked the upward surge in procurement’s impact….. Thank you very much.”
Simply put: compliance is good – work to improve it.
This article originally published on CPO Rising on 05/29/2012.
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