How to Contractually Agree on Specifications for Raw Material Purchases

zac2944

Involved In Discussions
#1
Looking for ideas on how to manage supplier specifications for my raw material purchases. More specifically, how to you contractually agree on what specification is to be produced in a given order?

My company has a policy that requires my engineers to obtain a signed copy of our raw material specification. The spec details all the requirements for the item, we sign it and the supplier signs it, and then we refer to that specification on our purchase order. Problem is that obtaining signed specifications is very resource intensive and internal audits are showing that it is often not done.

There is typically an agreement via email or over the phone between my engineers and the supplier's engineers. We get some sample material, test it, and then rush into production without finalizing the specification and getting signatures. The risk here is that if we have a huge customer complaint that is a result of a raw material issue we have no record or contract that supplier agreed to manufacture to our specification. Most suppliers would own up to this, but when you're into 7 figure issues that might not be the case.

I proposed a different method but I'm not sure if it will work. I'd like to program our purchasing computer system to include a copy of the latest raw material specification when we send out a purchase order, and then in the PO boilerplate state that by acknowledging and accepting the order the supplier agrees to manufacture to the included specification. This would make it a contractual agreement and relieves us of the paper chase trying to obtain signatures.

Sound like a crazy idea? How do you all accomplish this? What is the best practice here?

Thanks in advance Covers. This is my first post since Elsmar rose from the ashes. Feels like talking to a ghost. :D
 
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Michael_M

Trusted Information Resource
#2
Re: Supplier specification agreement

If I read your post correctly,

In our ERP software, we have each raw stock item named, for example: "SSRD155PH-00375". In the description of the specified material, we have: "3/8 Rd. 15-5 PH Stainless Steel per IAW AMS 5659"

On the Purchase order, we state 'to latest revision, unless specific instructions otherwise'

When a PO is created, we pull up the SSRD155PH-00375 and it auto fills the description including the AMS 5659.

Another example: "ALRD7075T7351-01375", which is "1 3/8 RD. 7075-T7351 ALUMINUM PER QQ-A-225/9"
 

normzone

Trusted Information Resource
#3
Re: Supplier specification agreement

There is typically an agreement via email or over the phone between my engineers and the supplier's engineers. We get some sample material, test it, and then rush into production without finalizing the specification and getting signatures. The risk here is that if we have a huge customer complaint that is a result of a raw material issue we have no record or contract that supplier agreed to manufacture to our specification. :D
If you have email you have a record, and that is a contract at the most basic level. I could live with emails as specifications if they contain enough information (P.O. number and material spec reference) and come from an appropriate person in the supplier's organization.

Phone conversations are as good as the paper they are printed on. I've seen people get burned by making major changes based on phone conversations, and then the source of the changes leaves the organization and there's nobody to turn to.
 

Coury Ferguson

Moderator here to help
Staff member
Super Moderator
#4
I proposed a different method but I'm not sure if it will work. I'd like to program our purchasing computer system to include a copy of the latest raw material specification when we send out a purchase order, and then in the PO boilerplate state that by acknowledging and accepting the order the supplier agrees to manufacture to the included specification. This would make it a contractual agreement and relieves us of the paper chase trying to obtain signatures.
This sounds like a reasonable attempt and control. However, are you talking about sending a copy of the Material Specification with every order, or just having it referenced in the body of the PO (Legal Binding Document)? Most Raw Material Suppliers have a copy of the required material specifications.
 

BoardGuy

Quite Involved in Discussions
#5
Re: Supplier specification agreement

On the Purchase order, we state 'to latest revision, unless specific instructions otherwise'
This is a no, no under AS9100 as you must spec the identification and revision of specifications you are ordering to.

Under contact law you may have a problem here because the terms and condition of seller take precedence over the customer PO term and conditions. So if the latest revision on hand at the supplier is three revisions lower than what is wanted you may not have a leg to stand on to reject the product because who’s latest revision was not specified in the contact.

[FONT=&quot]Another option I have seen which uses the term “latest released revision of specification XYZ” may be appropriate but there still could be ambiguity of requirements even with this term being used.[/FONT]
 

howste

Thaumaturge
Super Moderator
#6
Re: Supplier specification agreement

This is a no, no under AS9100 as you must spec the identification and revision of specifications you are ordering to.
I don't see that AS9100 is a requirement for the OP. Also, AS9100 Rev C states "revision status of specification" not revision of specification. Rev D has no mention of the revision.

Under contact law you may have a problem here because the terms and condition of seller take precedence over the customer PO term and conditions.
I'm no lawyer, but I don't believe this is always true. The contract terms that take precedence are the ones that are agreed to by both parties. If there is no formal agreement made, my understanding is that the "Last Shot" rule applies and whoever sent their terms last wins. If the buyer sends terms with payment, and the seller ships the product with no further terms, then the buyer's terms rule. If I'm wrong, I'd would like an explanation.
 

BoardGuy

Quite Involved in Discussions
#7
Re: Supplier specification agreement

I don't see that AS9100 is a requirement for the OP. Also, AS9100 Rev C states "revision status of specification" not revision of specification. Rev D has no mention of the revision.
7.4.2 Purchasing Information

Purchasing information shall describe the product to be purchased, including, where appropriate:

d) the identification and revision status of specifications, drawings, process requirements inspection/verification instructions and other relevant technical data.

Also we have talked about this on the cove here: https://elsmar.com/Forums/showthread.php?t=48735
 

BoardGuy

Quite Involved in Discussions
#8
Re: Supplier specification agreement

I'm no lawyer, but I don't believe this is always true. The contract terms that take precedence are the ones that are agreed to by both parties. If there is no formal agreement made, my understanding is that the "Last Shot" rule applies and whoever sent their terms last wins. If the buyer sends terms with payment, and the seller ships the product with no further terms, then the buyer's terms rule. If I'm wrong, I'd would like an explanation.
[FONT=&quot]Depends of which state the adjudication will occur. Just pointing out this could be an issue when you do not specify.[/FONT]
 

Coury Ferguson

Moderator here to help
Staff member
Super Moderator
#9
Re: Supplier specification agreement

7.4.2 Purchasing Information

Purchasing information shall describe the product to be purchased, including, where appropriate:

d) the identification and revision status of specifications, drawings, process requirements inspection/verification instructions and other relevant technical data.

Also we have talked about this on the cove here: https://elsmar.com/Forums/showthread.php?t=48735
I have seen POs from OEMs and a like, that require a earlier revision to specifications. Some Customers, want the earlier revision. So, the best way to handle that would be to specify in the Body of the PO what specification is warranted/required. Whatever is required, needs to be in the Body of the PO and/or drawing.

Just my opinion
 

zac2944

Involved In Discussions
#10
I would actually include a copy of my specification with the PO. My system uses the body of the email as the po. There is a line item with an ID number for the item and a description. We currently do not reference the item number (specification) revision on the PO line.

My engineers are required to have the supplier sign a copy of the latest specification, but it doesn't always get done which leaves us at risk.

My hope was that by sending over a PDF of our specs as an attachment to the email PO, and referencing the Spec and Rev Level in the PO line description we could do away with the signed copy. I would add a line to the PO boilerplate saying that acceptance and acknowledgement of this PO means you agree to supply per the attached specification. Of course that would have to be translated into lawyer-speak.

I'm not an AS9100 company. We're 9001 and supply flexible packaging material (pouch stock, lidding, ext.) to the food/pharma industry.
 
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