Practically implementing ISO 9001:2000 Clause 7.2.2 Contract Review

[Nikki Wessner]

We are an ISO 9001:2000 certified company and have been for 7 years. We receive 80% of our orders via a faxed PO from our customers. The majority of these have incorrect pricing noted. This is due to a variety of reasons. To name a few: Customers have not updated their systems to reflect our recent price increase, Customers receive a volume discount on a previous order and assume that the pricing will be the same no matter what the quantity or NO price is given.

If there is a large discrepancy between the customer's given price and our system generated price, then we halt the order process and communicate with the customer to get resolution. However, if the price is only off by a couple dollars then we will typically place the order and fax them back an order confirmation clearly advising them to "note correct pricing". To stop the process for every order would require a large increase in resources on our part, and also cause problems with delivering product on time. Management feels that to do this would increase customer complaints and make it difficult to do buisness with our company.

As lead internal auditor, I am unsure how to move forward. In 7.2.2, it clearly states that contract review should occur "prior to the organization's commitment to supply a product to the customer"...Which we are "technically" not doing, since we place the order (for small price discrepancies) without getting prior agreement from the customer on this price. To what extent does this apply? Does this include small price discrepancies?

ANY advise would be helpful here. IF we are noncompliant, is there information out there on how other certified companies handle this dilemna?

Thanks!
Nikki

[Jennifer Kirley]

Welcome to The Cove Nikki!

When I think of contract review I think of things like customer requirements, special handling needs, specifications used, and so on.

I don't normally think of prices as ISO 9000 goes. Seems odd, doesn't it? No doubt there are vast crowds of people with problems like yours. But unless price is a defined quality aspect I wouldn't consider it a hanging offense.

Maybe I'm walking on thin ice here, but I'd consider including a contractural clause permitting the type of events you described. Pricing flexible within 10% or else prior notification, for example.

IMHO, what matters in contractural review is what the customer says matters in the decision to buy: what constitutes goodness of quality and/or service.

That said, how often do you change prices? Would it help to install an internet based ordering method in which you could keep the prices current for them? If it's possible to help out the relationship by cleaning this up, you could be saving your folks some valuable time while complying with 7.2.3, 8.2.1 and 8.5.1.

[Nikki Wessner]

Interesting...our customer service manager brought up the question "Does this review apply to pricing..." We assumed it did because we were considering everything on the PO a requirement.

I appreciate your input.

[Jennifer Kirley]

Some people would indeed consider everything on a PO as a requirement. I would consider that an audit pot hole if my prices changed often enough to resemble falling out of requirements.

Some POs include a clause saying something like "Prices subject to change". If that bothers your customers, it should be negotiated before the order is finalized. If your customers don't care, the pricing issue could seem more important internally than externally.

Seems to me the cleanest method is to automate the ordering process so the price is placed up front.

[Nikki Wessner]

Thanks for your time Jennifer!

Our prices change annually, or they have the last couple of years. I'm not sure what you mean by "automating the ordering process"...we have a web shop, but it isn't widely used (about 7% of orders come in from this source). Most of our orders are faxed to us...either from a hand written PO or one generated from the customers ERP system. I'm having trouble understanding how this could be automated to state a price upfront.

Could you point me in the direction of any white papers or articles written regarding this?

Again, thank you for your insight!

[Greg B]

We receive most of our orders the same way (fax or email) but they are first vetted by the Marketing Department for approval. We raise a Sales Order Confirmation (SOC). Marketing approve price/sale/Specs etc and then send the SOC on to production. TProduction sign it to say they can make it by the due date with the specs required. It is THEN approved and not before. So it is a simple two step process.
Marketing yes/no
Production yes/No

If either party does not approve the order a secondary process is implemented to inform the customer but it is all recorded on the original SOC. It is an easy system...well, at least in our company. We have a Product Release form at the end of the order and the SOC is the master to approve the order and place it in the system.

[Nikki Wessner]

Hi Greg!

Are your orders for custom pieces or services? The reason I ask is that we sell an "off-the shelf" product. Orders come in at a rate of approximately 10000 a month (about 5000 of that is fax/email). What I'm concerned about is the feasibility of confirming each order before it is entered. I believe a simple process can be built (and I appreciate you sharing your process); however, the added resources in order to implement such a process would be huge.

Thanks,
Nikki

[CliffK]

I would claim that your company doesn't have to change much, if anything.

ISO 9001 7.2.2 says that you must review requirements before you commit to supply a product.

When does that commitment occur? For orders that unexpectedly arrive by fax, your company doesn't commit until you send out the confirmation.

Now, if the customer has requested a quote and you've provided one, you're bound by the terms of the quote as soon as the customer's PO arrives.

Which brings us to the one thing you might want to fix. Are your company's quotes clear about time limits or quantity limits? Is there language in the quotes that might lead customers to believe that a one-time quantity discount applies to all future business? If so, that situation would be worth addressing.

But if your order entry system works otherwise, don't change it because of ISO 9001. You don't need to.