Contract review is a critical aspect of running a successful shop. APQP, FMEA, and PPAP—all of these contribute to the “no surprises, products meet all aspects” of the customer’s specification delivery experience.
But what about the commercial side? The efforts you fail to make on commercial aspects of your obligations can have consequences just as serious as shipping nonconforming products to your customer.
QS9000, 3rd Edition, Section 4.3; ISO 9001:2000 7.2; and your own internal quality procedures define contract review. But has your customer clearly defined all aspects of your commercial relationship in the order? The success of your business may hinge on your ability to terminate a money-losing contract.
Define The Issues
Provision for raw material price increases, surcharges, commitment to material ordered to ensure leadtime compliance and your right to terminate the agreement are issues that may not have been well-defined during the contract review process.
If any of these issues surface, how painful their resolution is to your business might depend on your adherence to some other commercial “good practices,” including your company’s order acknowledgement process. Ask yourself the following:
- Is there a signed contract? This is a logical and perhaps embarrassing question. Without a contract, what is the agreement? The burden falls on us as suppliers to ensure that “the requirements are adequately defined and documented . . . the supplier shall ensure that the order requirements are agreed before their acceptance.” —QS9000, 3rd Edition, Section 4.3a.
- Did you review all of the fine print? They use fine print for a reason. Who in your organization knows what is lurking there? Get out the magnifying glass. There is work to be done here.
- Did you take exception to any unacceptable terms and conditions? Did you send a copy of your company’s terms and conditions as part of your defined order acknowledgement process? Intelligent management of risk requires that someone on your staff review these at the time of order placement. Otherwise, you might be paying an attorney to tell you what you really agreed to before you go to court at your customer’s insistence.
Order acknowledgements seem old fashioned and lack the glamour of some of the newer business practices we take for granted. Just another non-value-added step, you might be tempted to think. Order acknowledgements are dreary work, and who wants to argue with the customer about this stuff?
If you do not have a signed agreement, your customer may insist you have one and take you to court. You’ll be better armed if, during the ensuing battle of forms, you sent an acknowledgement form. Your order acknowledgement will (to paraphrase Archimedes) “give you but a place to stand.”
Contract review is more than just the technical side of tolerance call outs, surface finishes and Cpk. It can be your business’ best assurance that you are not forever at risk to supply parts at money-losing prices. You can prevent that risk by ensuring that each order’s terms, conditions, duration and rights of termination are clearly spelled out. It isn’t business as usual anymore. Structural changes in global markets and supply chains have everyone scrambling to lock in the best deals and minimize the impact of change—change that you might need to embrace to stay competitive.
Does your company consistently provide order acknowledgements to your customers? Have you reviewed your order acknowledgement terms and conditions lately? Who in your organization has reviewed the terms and conditions of your existing customers’ long-running orders? Now seems like a great time to start.