Supply Excellence — Top Supply Strategy #2: A Compliance Tale

Top Supply Strategy #2: A Compliance Tale

October 20th, 2006 · by Tim Minahan · 1 Comment · Top 5 Supply Strategies, best practices, contract management, events

The first phase of supply management improvements focused on developing new processes and deploying Web-based tools to automate existing processes and to identify cost savings. The next phase of supply management – in which we currently live – is all about compliance.

That’s why imposing policy, process, and system changes to ensure compliance is the second most common supply management strategy, as reported by the nearly 300 supply management and business executives attending Empower 2006. (View the complete Top 5 Supply Strategies list.)

To be sure, compliance is a broad and overused term. (I even got a lecture recently from my dentist on the importance of “flossing compliance.” I kid you not!) The types of compliance that keep supply managers up at night come in three flavors:

Supplier compliance – are suppliers complying with agreed upon pricing and service levels?
Regulatory compliance – are my company’s supply decisions, reporting, and procedures compliant with the changing array of financial, operational, and environmental regulations?
Operational compliance – are my supply team members, frontline requisitioners, and partners complying with corporate goals, supply contracts, and buying procedures?

Considering that more than 70% of supplier relationships are governed by formal contracts, improving visibility and control of contracting and contract management activities has become the chief compliance initiative for supply organizations.

Just ask Qualcomm. Pressures to respond to internal audits, support Sarbanes-Oxley Act compliance, and mitigate litigation drove this leading provider of digital wireless communications devices to launch a contract management improvement initiative. While presenting at Empower 2006,Debbie Adams, Senior Project Manager at Qualcomm said “corporate goals, such as SOX compliance, really helped accelerate and expand our original program into a company-wide initiative.”

Qualcomm adopted a contract lifecycle management solution to automate and standardize the contracting and contract administration process. Initially launched as a divisional project in 2003, the program took off when the company transitioned to a hybrid contract management model.

Under this “center-led” model, the following activities were centralized under a common contracts group: program vision, business rules, steering committee ownership, CLM solution and vendor management, record auditing, and training. Data entry, contract administration, reporting, contract negotiations, and supplier relationships are managed by more than 600 employees in various functions across multiple business units. All contracting and contract admnistration and compliance activities are managed and monitored through the CLM system.

Today, Qualcomm uses a common CLM system to manage over 30,000 contracts — from basic supplier product and service contracts to complex customer, partner, and intellectual property agreements. While SOX and litigation helped speed alignment for contract standards and systems, Adams identified the following as critical success factors:

Independent project management: Adams and the contract organization were not tied to any one team or IT. Instead, Qualcomm aligned the contract management group and initiative with an influential sponsor: corporate legal. “Having the General Counsel driving this initiative really helped get the businesses in line,” says Adams.
Strong relationship and capable software tool: “Ensure that the [CLM] solution provider you select is configurable to your company’s processes and that your solution provider is responsive to your enhancement requests.”
Consensus through Steering Committee: Qualcomm drove and maintained support for the contract management initiative by ensure that all business units and multiple functional groups had input into the program structure and improvements. “We realized that people would be much more likely to support [the program] if they have a voice in it.”
Mentor power users: Qualcomm’s contract group trains and advises power users within each business unit to speed responsiveness to stakeholders and alleviate pressure on the primary enterprise administrator. “Internal customer service and support can make or break a program’s success,” says Adams.
Centralized oversight with decentralized ownership: Qualcomm’s contracts group and steering committee provide program vision, contracting and process business rules, system management, auditing, and training. They also manage the relationship with the company’s CLM solution provider. Leveraging the visibility and controls of the CLM system, Qualcomm affords business units and functional stakeholders the latitude for decentralized data entry, contract administration and management, unique reporting, contract negotiations, and customer and supplier relationship management. “We put a reliance on internal customers to provide the functional expertise to provide the unique language and terms required to ensure best value agreements that limit risk to the company,” says Adams. This “center-led” structure is becoming more popular, thanks to the visibility and control afforded by improved information management and reporting. This organizational structure has been examined in previous Supply Excellence posts and will be the subject in the coming week as we examine Top Supply Management Strategy #5.
Audit and measurement: Qualcomm ensures corporate goals and system adoption through standardized and periodic auditing and measurement. Adams says such standards also help Qualcomm quickly report on overall program performance and benefits.

Moral of the story: the quickest way to get a contract or supply management initiative or technology investment funded is to attach it to a crisis. For Qualcomm, SOX and patent litigation were crises senior management and frontline employees could rally around.

Is there a crisis that you can use to curry support, resources, and budget for supply management initiatives at your company?