NEWS & EVENTS

Define the Undefined – An Article on Contract Review 

October 27, 2021

The surest way to delight your customers is to provide them exactly what they want, when they want it, at the price they agreed to.  Unfortunately there are times when there are challenges meeting one (or all) of these three things.  This article outlines a few strategies that may help when working with vague requirements that can lead to misunderstandings with customers.

So what did we agree to? In a traditional business there is a solicitation from a customer who is seeking bids on a project.  The business supplies a quote, and then the customer accepts the proposal and issues a purchase order.  Once the purchase order arrives the business reviews it to confirm it matches what was quoted, and the team translates the purchase order requirements into actions for the business to make and/or buy what is needed to fulfill the order.  This review is a critical element:  this is the last chance to ensure that the business is aligned with what the customer expects to receive.  This step initiates all of the plans and actions that will follow to ensure the customer gets exactly what they want.

Clarifying expectations During the review it is possible – sometimes likely, depending on the customer – that some of the requirements will be unclear.  Some expectations could be vague while others are completely undefined.  A strong review process by a cross functional team will help ensure those items are identified and can be resolved as quickly as possible.  Some typical findings during the review process may include:

1. Manufacturing processes within the business do not align with the tolerances or requirements defined in the purchase order
2. The lead time quoted does not match the available capacity of the business
3. The lead time for purchased items (including raw materials) will not allow delivery by the date that was quoted
4. It is unclear who pays for manufacturing fixtures
5. Inspection requirements do not clarify all aspects of how the products will be evaluated.  For example, if visual inspection is required, details such as light intensity, type of background, the distance between the inspector and the product, and whether or not magnification is permitted are some of the items to consider.

The traditional approach is for the sales team that quoted the work to go back to the customer and ask the clarifying questions that are needed or to provide a revised quote with new lead times.

What other options are there? In some cases you may need to develop your own standards by defining the undefined.  When requirements are vague, one approach is to define how your company plans to perform the work.  Document all aspects of how you will execute your interpretation of the requirements.  Then during status reviews or source inspections, you can present your documentation as a starting point for the conversation.  By putting in writing your interpretation you are able to demonstrate to your customer that you had a well thought out method, and often they can be persuaded to agree with the requirements as you interpreted them.

Better to be proactive than reactive To stay ahead of challenges after contract award, it is best to answer the typical questions during the quote phase.  A goal should be to do all that you can to ensure the proposal includes details of what can actually be achieved by the business.  Consider balancing the topics of capability, capacity, and supply chain.

Capability – during the quote, understand what manufacturing processes you plan to use to meet all of the requirements.  Be aware of the tolerances each of your manufacturing processes can achieve, and review the quote to ensure there is alignment.

Capacity – know what each of your work centers can accomplish each shift, build a model to show your ability to fulfill the orders you already have, and look at the projected timing of the quoted work to identify if resources will be available to fulfill the order.  This information can be used to create action plans that will be taken during contract review that may include hiring additional employees, buying more equipment, or knowing which of your suppliers could be used to outsource work to.

Supply Chain – for the raw materials or purchased items used by your processes, stay in touch with your suppliers so you have accurate data for current lead times and ask them to notify you of any changes.  When regulatory requirements impose upfront work before sending technical information to new suppliers, have a clear process for bringing them up to speed and get started as early as possible to avoid delays.

At strong companies, the request for quote process is as strong (or stronger) than the contract review.  This can be difficult to fully support since there is no guarantee that the effort exerted on the proposal will translate to an actual order.  One way to minimize this risk is to use the expert judgment of the sales team to provide an estimate on the likelihood of winning the bid and assign resources appropriately.

Building a world class organization By assigning strong, cross-functional resources to both respond to quotes and review contracts that have been awarded, unique perspectives can help ensure the company fully understands the requirements of the project about to be undertaken.  Recognizing the constraints of the business’s capacity, capability, and supply chain will help provide a quote that can be efficiently executed by the organization once the order arrives.  With clear communication during kick-off and throughout the monitoring of the project, requirements can remain clearly defined and all customer expectations will be met.

John Lowrey III is an ASQ Certified Manager of Quality/Organizational Excellence and is the Vice President of Quality at XPER, Inc.  He lives and works in Butler County.