Managing Vendor Relationships: Increasing Value with Greater Transparency
Your organization works with vendors in various product or service categories, such as logistics, manufacturing, research and development, facilities management, construction and advertising among others. These relationships are often governed by complex and sometimes ambiguous contractual clauses which can result in vendors not complying with their obligations. This can result in unnecessary expenditure, which can frequently occur through:
- Application of rates outside of the contractual agreements
- Miscalculation of, or failure to apply, discounts or rebates
- Duplication of charges or invoices
- Unanticipated management fees or other hidden charges
- Inappropriate or overstated pass-through costs
- Non-compliance with “best pricing”, or Most Favored Customer clauses
- Unauthorized outsourcing to subcontractors
In addition to the risk of overcharging, vendors may expose you to increased supply chain, reputational, regulatory, ethical and competitive risks. For example, a vendor’s financial health, or processes concerning data security, business continuity, bribery and corruption, sourcing and working practices and conditions, can negatively impact your business in a variety of ways. How do you verify that you are not paying more for goods and services than you agreed to with your vendors?
Performing vendor evaluation and compliance activities can help identify and mitigate risks and may demonstrate significant value in delivering:
- Cost recoveries related to past transactions
- Future cost reductions
- Process improvements internally and at vendors
- Improved risk management and governance over vendors
- Enhanced relationships and trust with vendors
- Valuable insight to inform future vendor related decisions
A primary focus of vendor compliance is to identify instances in which your organization has been charged in excess of the contractual expectations. Appropriate attention frequently results in recovered costs and future cost savings. The contract inspection process can be used to perform additional activities to gain visibility into your vendor’s key processes and governance over other risks.
Contract risk and compliance services help companies enhance relationships with other businesses to improve business processes, increase revenue, manage costs, address risks, strengthen relationships and boost performance. The result of vendor compliance activities can be a self-funding program that generates financial recoveries AND help you with overall risk management.