Contract Review
What is Contract Review for Manufacturing and Service-Related Businesses?
Contract Review for businesses in the Manufacturing and Service industries that are either ISO900x or AS9100 compliant or certified is the process for which the business reviews Customers’ Purchase Orders. This review process ensures that they can meet all the requirements set forth. This process is a critical step in accepting a Customer’s Purchase Order. Once a Purchase Order is accepted, the Business has entered into a legally binding contract to provide the product or service the customer ordered. Therefore, it is in the business’s best interest to perform a complete review of the requirements BEFORE the customer’s Purchase Order is accepted. To see another definition for Contract Review from an ISO900x point of view, click here.
Requirements Within Today’s Purchase Orders
Customer Purchase Order requirements within the Manufacturing and Service industries have increased. In today’s competitive global economy, more requirements are added to the Purchase Order to ensure that all Suppliers understand what the Customer has ordered and ensure expectations are met as identified within the Purchase Order.
Typical Content Include:
Part Number and Revision Level
The Part Number can be either that of the Customer or the Business and sometimes can include both. Businesses need to be able to identify both in an internal Order Management system should that situation arise. The Revision Level is also critical. Each Revision Level ordered is unique, and understanding the differences between Revision Levels is mandatory.
Quantity Ordered and Delivery Dates
It is paramount that the internal Order Management system identifies the Quantity and Delivery Date requirements identified within the Purchase Order.
Industry Specifications
Some purchase orders might require that the product meet a specific industry standard. Once again, the industry specification requirements must be included within the internal Order Management system.
Quality Clauses
Many Companies have a list of Quality Clauses. They identify the Quality Clause requirements of each line item ordered by referencing a Number or Item from this list. Therefore, the recipient of these purchase orders must have the latest Companies Quality Clause list version. In addition, including the Quality Clause requirements for each line item ordered within the internal Order Management system should also be critical.
Terms and Conditions
Many Companies have a list of Terms and Conditions (T&Cs) for Purchase Orders. Some of these are generic and apply to all purchase orders. Others might identify the T&Cs applicable to the Purchase Order as a whole, and others might identify T&Cs per line item ordered. No matter the variation, the Business must be able to transfer those T&Cs to the Sales Order in the same fashion. Furthermore, having the latest version of these T&Cs is mandatory.
Labeling, Packaging, Preservation
Many companies include labeling, packaging, and preservation requirements in Purchase Orders. As with all other requirements, the Business must be able to transfer those requirements into the internal Order Management system.
Fixed Process
Some Companies have requirements to pre-approve a process flow before fulfilling a Purchase Order line item. Once approved, Customers’ Purchase Orders will reference the Fix Process requirement. Businesses must be able to transfer this Fixed Process requirement into the Sales Order.
Best Practices for Contract Review
Cross-Functional Group Review
Businesses’ products or services will dictate the best approach to Contract Review. Generally, the best practice is to have a cross-functional group review each Purchase Order. Each functional group focuses its review on its responsibilities within the fulfillment process. A simplistic approach might include the functional groups of Sales, Manufacturing, and Quality. For complex products or services, the cross-functional groups might expand to include other groups like Engineering, CAD, Export Compliancy, NDT, X-Ray, Purchasing, Materials, etc. Identifying the functional group requirements of each Contract Review is crucial.
Electronic Review
Completing Contract Reviews electronically is an efficient and effective method. Each Contract Review will identify the functional groups needing review and approval. An electronic review eliminates delivering paperwork through the process and provides flexibility to each cross-functional group as to when and where its review occurs. In addition, the electronic review also provides the ability to monitor the progress of each contract review and send out reminders to those functional groups behind schedule. Furthermore, prioritizing the contract reviews, capturing the approvers, and completion times provide data that can be included within business metrics.
Complete Transparency
A Contract Review must include all the relevant information for each functional group to assess whether the requirements within the Purchase Order are attainable based on their responsibilities. In addition, the requirements and expectations help facilitate the action items that must occur before the fulfillment process. Having the appropriate functional group review and approve each purchase order eliminates surprises later.
Different Process based on Product Lifecycle
The Contract Review process should also be dependent on the product lifecycle. For example, a first-time product build requires a thorough review and presumably more significant numbers of necessary action items in preparation for its fulfillment. On the other hand, a repeat order (i.e., repeat build) will require a streamlined approach to the review process, as most of the original actions are already completed and in place during the first-time build. Furthermore, a revision-level change requires a different review approach. Lastly, if there is a significant gap in when the product was last manufactured or serviced, that may require another approach.
Benefits of a Contract Review Process
No Surprises
Each functional group had the opportunity to review all the requirements within the Customer’s Purchase Order. As a result, there should be no surprises during the fulfillment process regarding Customer Expectations.
Amendments To Customer Purchase Orders
Before accepting a Customer Purchase Order and executing a legally binding contract, the Business could submit exceptions, comments, and changes for the Purchase Order to the Customer. This communication solidifies the expectations and commitments between both parties.
Non-Acceptance / Rejection of Purchase Orders
During the review process, if it is determined that the customer requirements and expectations cannot be met and amended to accommodate both parties, then the Business does not accept the Purchase Order. This limits the number of actions the Business takes, eliminating valuable resource allocation and wasteful work.
Action Item Identification, Schedule, and Resource Allocations
The functional group review process identifies the actions that are required in preparation for order fulfillment. These actions can be identified and scheduled. Each action could be costed based on the personnel and labor times for completion of the actions. These costs can then be included in profitability calculations at the end of the order fulfillment.
Choosing SimpleManufacturing™ as your next Contract Review Solution
The SimpleManufacturing™ Contract Review Module is an efficient and powerful approach to reviewing Customer Purchase Orders. This process ensures businesses understand the requirements and acknowledge they can meet them before Purchase Order Acceptance.
SimpleManufacturing™ uses a flexible, cross-functional approach to Contract Reviews. In addition, functional group members review and approve all contract reviews electronically – no more moving bundles of paper from person to person.
The built-in flexibility allows Businesses to set up the contract review process differently based on the product lifecycle– first-time builds, repeat orders, new revision levels, and lengthy periods between builds. In addition, this flexibility reduces the impact of resources in the contract review process, where appropriate.
SimpleManufacturing™ provides quick access to existing contract reviews, the ability to easily copy contract reviews, a dynamic view of the number of contract reviews still pending review for each functional group, and behind-the-scenes business metrics to determine functional group characteristics.
The result of using SimpleManufacturing™ for your contract review process ensures the organization can meet all requirements and expectations set forth by the Customer in the Purchase Order. In addition, all functional groups are aware of the requirements of the Purchase Order before Order Acceptance. Furthermore, all exceptions, comments, and requested changes are documented, and any changes required in the Purchase Order can be made before order acceptance. Lastly, scheduling and tracking action items ensure the successful fulfillment of the Customer’s Purchase Order.