What a Flood in Thailand and Lead Paint in Toys Can Teach Us About Contract Risk Management

An enterprise organization may have several thousand active contracts at any given time, and each one carries a potential risk of regulatory non-compliance, supply chain disruptions, and public relations disasters. Without a proper system for managing contract obligations and commitments, these risks remain hidden, which can cost the enterprise millions of dollars.

Assessing the damage

Consider the example of RC2 Corp. In 2007, the company paid a $1.25 million civil penalty plus $30 million to settle a class-action lawsuit for failure to comply with updated lead paint regulations. That same year, Mattel recalled 2 million toys and paid a $2.3 million fine, also for non-compliance on lead regulations.

In a different risk scenario, a flood in Thailand in 2011 disrupted companies that manufacture automobile and camera components. Honda lost $88.3 million in inventory and recovery costs, while Nikon lost $786 million.

At first glance, these nightmare scenarios may appear to have little to do with contract risk management. Yet with the right solution, firms can not only keep track of contract creation and execution, but empower contract data to identify potential supply-chain issues and vendors who pose a risk to regulatory compliance. The Icertis Contract Management (ICM) platform allows companies to mine contracts for vital business data that helps them avoid situations that can hurt revenue and reputation and seize business opportunities. This is both more time efficient and holistic than supply-chain assessments, reducing the chance of identifiable risks falling through the cracks.

How It Works

ICM simplifies contract risk management by serving as a central repository that houses all enterprise contracts and related data such as specifications, regulatory requirements, and SLAs that suppliers must meet. Monitoring regulatory compliance across the globe is simplified with region-based workflow variations. ICM increases visibility into the supply chain, helping organizations prevent disruptions and improve compliance.

And, as a recent Spend Matters report noted, when a contract management platform links both buy-side and sell-side obligations the way ICM does, it provides unparalleled risk management opportunities.

• Users understand how supply chain disruptions will impact customers and are able to identify which disruptions pose the greatest risks.
• Customer requirements can be better communicated to upstream suppliers, leading to improved compliance with contract terms.
• Users can easily identify single sources of supplies and raw materials, and suppliers that can provide dual sourcing or alternate sources of materials. This allows organizations to develop contingency plans that minimize the impact of supply chain disruptions.

In short, contracts are a powerful, but often under-used, risk management tool for firms. The ICM platform unlocks contract risk management capability with its intuitive, highly configurable interface. It offers full visibility into all business contracts, improving regulatory compliance and allowing organizations to get a firm grasp on their supply chains.

To learn more about how better contract management can protect your business, download the Spend Matters Analyst Report, The Intersection of Contract Invisibility and Risk Management.