Compliance management
Of what use are carefully negotiated contracts if product users within the company do not order from the corresponding suppliers? Due to inadequate transparency, badly defined responsibilities, or simply a lack of incentives, framework procurement agreements often remain unused. Instead, preference is given to relationships with local suppliers.
The purpose of compliance management is to bring order to this kind of slackness. A key component of the control process is careful and detailed documentation, in the form of noncompliance reports, of all procurement that takes place outside the selected supplier circle and all deviations from the rule.
These reports are completed by the product user as part of the ordering process whenever he or she wishes to source from a supplier outside the preferred circle. Noncompliance may be sanctioned in certain cases, such as the following:
Business needs that generally cannot be met by the scope of products and services of the selected suppliers
Specific, short-term demand that the selected suppliers are not able to meet
Initially, deviations of up to 10 percent are tolerated, with only bigger deviations triggering a reaction. After a certain time, the margin can be reduced to 3 percent or even zero. In order to achieve complete compliance with the company’s contracts and agreements, a number of conditions need to be fulfilled:
Since product users obviously have to be aware of the agreements and know who the preferred suppliers are, procurement needs to ensure this information is clearly communicated within the company.
The ordering process needs to be structured in such a way as to prevent inadvertent noncompliance—for example, by making it impossible for certain product users to place orders outside the selected circle of suppliers. Similarly, the catalog of products that can be ordered from these suppliers is restricted. This is frequently done in the case of office equipment.
The processes need to be sufficiently user-friendly for users to comply voluntarily (and not because the “bureaucracy” forces them to comply).
Guideline compliance needs to be supported by positive (and also negative) incentives, both for the product user and the purchaser, whose work is naturally oriented to the needs of his or her internal customer.
Ultimately, it is up to top management to set an example by adhering to the rules and making it clear that it is serious about its compliance requirement.