Audit of contracts – part I
The purpose of the audit of contracts is to identify internal and external risks associated with cooperation with suppliers and design a program of activities to increase the profitability of business relations and increase the competitiveness of the company.
How does the audit of contracts works??
The model contract auditing process consists of several basic stages. The first is to define the scope of the audit. It usually takes place during a series of preliminary meetings with stakeholders and is aimed at identifying the required support. Specifying the scope is the starting point for further steps.
Offline research
The second step in the process is to study the contracts offline. During this stage the auditors:
- analyze terms and conditions of contracts with suppliers
- identify participants of the purchasing process
- identify and describe purchasing processes
- determine the impact of contractual provisions on the company.
This stage is aimed at preparing auditors for subsequent stages, during which they work on proposals of corrective actions.
Value stream mapping
The next step is a series of meetings with employees of the purchasing department – buyers and contract managers. These meetings are VSM workshops and are usually divided into three parts:
- diagnosis of the present,
- description of the future state,
- defining plan for closing the gap between the current and the future state
What are the expected goals of the VSM workshops? Most often they help to identify current problems and to prepare short-term and long-term plan of actions to eliminate them. VSM workshops results are also used during the preparation of the final report showing the links between the management of suppliers and the results in other areas of the company’s operation as well as proposals for changes in the supply management strategy.
The next stages of the contract auditing process will be described in the next note. And today we invite you to familiarize yourself with the offer of Eveneum.