Eternal Vigilance is the Price of Liberty — and Contract Compliance

Speaking to a group of abolitionists in the early 19th century, Wendell Phillips proclaimed that "eternal vigilance is the price of liberty." Flash forward nearly two hundred years and he might have tacked on the phrase "and contract compliance" when referring to indirect procurement in the business world. I was reminded of this when reading a Purchasing article last week that hints at the challenge -- but does not entirely get at the broader issue -- of assuring that identified savings from office supplies sourcing actually hits the bottom line. According to the article, "When it comes time to tightening the belt on office products spend, all the core tenets of spend management apply. Many office supply buyers find supplier consolidation to be a helpful strategy to manage their overall spend -- increasing volume with the better suppliers can provide an edge at the negotiating table in the next contracting season ... Consolidating to fewer suppliers also drives more accurate office supply spend tracking, but it doesn't mean all maverick spend problems will go away."

The last point around simplifying spend tracking is an important one, but it does not get at the underlying cause as to why. Over the years, I've heard numerous horror stories -- including a number from BIQ's Eric Strovink -- about the challenges of proactively managing compliance not just on the internally demand side of the equation but on the invoicing and payment side as well when it comes to office supplies, among other categories. The point, unfortunately, is simple, and shows how many suppliers at least in a handful of categories including office supplies will take advantage of procurement organizations that are not tracking compliance to contracted terms and pricing. In some cases, I've heard of systematic -- some might say fraudulent -- invoicing practices by suppliers who intentionally invoice above contracted terms because they know they can get away with it. It's behavior like this which can lead to even greater savings erosion than not thwarting maverick spending internally for indirect categories.

If you've got a first rate eProcurement and EIPP solution that is tightly integrated with the actual payment release mechanisms within your ERP software, it's usually possible to catch such activity before it spirals out of control. But for everyone else, there is hope in the march to maintain our liberty from paying too much -- and being cheated out of hard earned savings. And that's to use an analytical tool to analyze item-level contract, invoice and payment information going back a period of months or years. A flexible analytical / stat package from a provider like SAS or BIQ is just the ticket to conducting this type of analysis on the fly. Armed with information about how your indirect suppliers are really behaving on the invoicing side, it's possible to take back control, keeping the savings you worked so hard to create in the first place. Just be sure to send those suppliers who cheated you a bill for what is rightfully owed.

Jason Busch

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