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Saturday, August 23, 2014

Supply Management’s Role in Organizational Compliance Is Critical


Credit: Stuart Miles at

Credit: Stuart Miles at

The importance of organizational compliance is not new to supply professionals. They have been and continue to be responsible for their organizations’ internal compliance to accounting standards. These standards ensure that expenditures have been approved and are included in departmental budgets, possess the correct sign-offs and account numbers, meet minimum bid requirements, and include, if necessary, detailed purchase decision justifications and explanations.

Purchase orders and long-term contracts must include all of the necessary supply reviews and sign-offs by appropriate supply levels. Supply departments are also responsible for ensuring that procurement card (p-card) systems used for smaller buys comply with organizational and accounting standards and guidelines.

Also, many purchasing departments have taken on rigorous efforts to eliminate non-purchasing purchases — or maverick buying — that bypass the organizationally established protocol for handling the buying of goods and services. They also work to protect confidentiality in meetings and discussions with suppliers and other external sources. There are many other organizational standards for which supply departments oversee compliance.

But today, compliance has just as much to do with abiding by the outside regulations of doing business as within. External compliance requirements have escalated due to:

  • The events of 9/11
  • Increasing import regulations
  • Sarbanes-Oxley
  • Risk management importance
  • Complexity of global supply chains
  • Intellectual property management
  • Increasing security challenges
  • Cultural diversity
  • The growth of supply chain breach of ethics and compliance — and public visibility of such breaches
  • Growing consumer demand for social responsibility.

Along with internal compliance demands, supply professionals are now heavily involved in many external compliance requirements.

Global trade compliance now requires supply professionals managing overseas supply sources to include documentation, international logistics, labeling/marking, and country of origin information as part of the purchasing process. This calls for additional communication tasks, supplier education, and heavy oversight of follow-through.

The supply professional must ensure that documents and certificates necessary for importing goods into the United States are completed in detail and accurately and then forwarded electronically to the Automated Commercial Environment site maintained by U.S. Customs and Border Protection (CBP) as well as other required sites. These documents include ocean/airway bills of lading, country of origin papers, agency certificates, customs invoices, commercial invoices, and packing slips.

Meanwhile, various certificates for restricted products necessary for compliance with any of the 47 or so U.S. government agencies are critical to goods being approved and released by CBP and the involved agency or agencies.

Customs and Border Protection recently implemented the Importer Security Filing initiative, nicknamed 10+2, requiring contact information for those organizations that have been involved in some aspect of incoming shipments. Some of the necessary information is provided by international shippers, and the forms must be forwarded to CBP electronically 24 hours prior to containers being loaded onto ships. There are other issues that are reported by the shipping lines.

CBP has begun to levy fines of up to $5,000 for each infraction, so the supply professional plays a big part in the Importer Security Filing compliance process.

Supply departments are also responsible for suppliers’ compliance with proper fumigation of wooden packaging and pallets used to ship the products being imported, certifying that any wooden material in the product has not been harvested from endangered rain forests and ensuring that proceeds from the product will not be used to fund insurgency and terrorist initiatives.

Purchasing has responsibility as well in working with overseas suppliers to meet their organizations’ manufacturing specifications, as well as all product guidelines published by CBP and the Consumer Product Safety Commission in regard to lead levels, labeling, marking, energy statements, and care instructions.

The Office of Foreign Assets Control publishes country sanctions, embargoes, and specially designated nationals with whom U.S. companies should refrain from business interactions. Procurement organizations must be aware of this ever-changing list and ensure compliance.

Social responsibility has taken on great importance due to the growth of global supply chains and the introduction of various codes of ethics by nongovernmental interests, including the Principles of Sustainability and Social Responsibility published by the Institute for Supply Management as one example. This ISM code alone includes guidelines for safety, community, financial accountability, the environment, human rights, diversity and inclusiveness, ethics and business conduct, global citizenship, labor rights, and sustainability.

Laws are already in place in the European Union to eliminate or reduce hazardous metals in products as well as require the return of spent electronics to their manufacturers for recycling. Organizations are establishing standards for their suppliers in these areas and using the criteria in their supplier selection processes.

Supply departments are also being mandated to require that supply sources meet established safety, health, worker pay, and work condition standards.

IT compliance to the terms and conditions of the information technology or software provider’s contract is a large responsibility for the supply professional involved in this special type of purchase. The buyer should know the number of licenses specified are being used appropriately and that no unauthorized person/persons are using the software. Also, the maintenance of information technology equipment under these agreements should be handled in compliance with terms and conditions.

The Sarbanes-Oxley Act (SOX) was signed into law on July 30, 2002 and should be well known to every procurement professional. SOX has brought change at nearly every public company requiring transparency in financial statements. The Sarbanes-Oxley Act was a direct result of the serious misconduct by business leaders in the late 1990s and early 2000s.

Areas now under scrutiny for off-balance-sheet obligations are vendor-managed inventories, long-term purchase agreements, letters of intent, late supplier deliveries, and outsourcing arrangements with dollar impact. These are areas managed within the supply realm, and they add to the compliance efforts and responsibilities of supply departments.

The compliance discipline has now taken on even greater significance for supply professionals and departments and requires compliance strategy development, implementation, and management. Compliance has grown into a major competency and best-practice component of a world-class supply function.

RELATED: Supply Management Needs to Take Charge of Compliance


Marilyn Gettinger is owner and principal of New Directions Consulting Group, which works with organizations on improving their supply chains through process streamlining and reengineering. New Directions Consulting Group offers workshops and consulting to companies from 30 employees to multinational corporations to upgrade purchasing, inventory, and supply chain processes. Gettinger teaches total quality management, supply chain management, and international trade at several post-secondary schools. She is currently teaching a certificate course on advanced principles and best practices in supply chain management at William Paterson University supporting CSCP and CPSM preparation. She holds a C.P.M. and is a member of the Institute for Supply Management and the American Production and Inventory Control Society. She can be reached at (908) 709-0656 and 


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