Contract and Supply Chain Risk Management
Strong relationships are built on trust, but trust has to be earned. Gaining assurance that third parties have complied with their contractual obligations is more than merely prudent, it’s essential.
Collaboration with third parties can include outsourcing, joint ventures, licensing deals, distribution rights, contract research, technology services, distribution channels and logistics. The benefits can be irresistible – increasing scalability and speed to market, reducing cost, leveraging brands and intellectual property rights across geographies, providing focus on core competencies, access to specialist skills and experience – the list goes on.
Publications
- Supplier contract compliance & evaluation in local government (190 KB)
- Supplier risk (112 KB)
- Trust, but verify (80 KB)
The challenge
Often, third parties are integral to business critical areas and core processes: IT, HR, distribution, licensed manufacture and sales, procurement, R&D, security. Where contractual arrangements are based on third party self-reporting of usage, performance, compliance, costs or revenues, new risks are introduced. In light of the numerous benefits, the risks are overshadowed or overlooked, often creating a considerable level of trust embedded in the third party. Whilst the service may be outsourced the management of the risk is not.
How we can help you
Deloitte’s contract risk & compliance team has witnessed the frequent manifestation of risk, often resulting in value leaking away, some of which may be recoverable. In response, we have developed a tried and trusted approach to dealing with third party contract risk based on four key principles:
- Business process: understanding the reliability and continuity of key business processes at the third party.
- Trust and integrity: understanding and assessing the impact on revenues, brand and reputation through sharing information and relying on third party self reporting.
- Performance management without explicit control: identifying successful approaches for ensuring that your business objectives are delivered.
- Risk and control: validating processes and controls that underpin the relationship and the interface between your organisations.
Reliance on third party relationships, coupled with ever increasing requirements to demonstrate good governance, produce robust financial information, maximise revenues and reduce costs, has led to many organisations looking beyond the traditional methods for gaining assurance and maximising value.
We assist our clients in their management of third party relationships, providing:
- Assurance in traditional areas of corporate governance and operational stakeholders through investigating the existence and adequacy of control processes.
- Identification and quantification of inaccuracies in third party reporting of revenues, royalties, performance, costs and charges and in areas where value has leaked from the organisation.
- Practical guidance to improve the management of third party relationships through internal operations, contractual improvements and communications with business partners.
Whether concerns or assurance requirements sit with one specific partner or over a range of providers, whether they lie upstream or downstream from the organisation, we provide a bespoke, fit for purpose method by which you can:
- Identify instances where revenue has been underreported or costs overstated.
- Quantify instances of non/poor performance relative to contractual obligations.
- Assist in the identification of the relationships where the greatest level of additional value can be achieved.
- Identify process improvements and share best practices across similar partners.
- Facilitate enhanced relationships through greater shared understanding.
Our team is skilled and highly experienced in a wide variety of areas across a large breadth of industries. We have experience working with upstream third parties such as outsourced service partners and joint ventures as well as downstream third parties such as licensees, distributors and customers. We use data analysis tools and techniques to produce highly efficient work methods. Our team has extensive international experience and a history of working effectively with the Deloitte network to deliver internationally consistent results.
We often identify non-compliance with terms and conditions or other contractual arrangements or inaccuracies in self reporting. This non-compliance is quantified and can provide you with significant leverage. This can result in our service being materially revenue generative. Contract risk and compliance activity results in revenue benefits, improvements to processes, service levels and business relationships and greater visibility of your extended operations.
Key contacts
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