Legislation should be included in supply chain resilience strategies, argue Nick Lees and Aaron Dixon
A series of internationally disruptive unforeseen events, including Covid-19 and Brexit, have prompted many organisations to rethink and redesign their supply chain models in a bid for increased agility and to mitigate the severity of these impacts.
Obtaining clear visibility and understanding of the contracts underpinning key business activities and relationships is critical for those facing uncertainty. Businesses also need to determine whether appropriate contract terms govern every stage of their supply chain activities.
Even better, reassessing the risk-reward landscape is an opportunity for renewed thinking to redesign and improve supply chain architecture. While change is nothing new – and some are even thriving on it – the past 18 months have thrown some particularly awkward curveballs.
The pandemic is the most obvious, but political uncertainty in the US, the Brexit transition and geopolitical issues with China have also brought challenges. For businesses today, the task is to manage these risks by maximising resilience of supply chains.
Pre-pandemic, due diligence and risk assessments were often the reserve of top-tier suppliers, leaving businesses blindsided and vulnerable to any shocks affecting those less visible, lower-tier suppliers.
The reality of the vital importance of the multitude of suppliers lower down the chain soon became clear, as did their role in the overall supply chain hierarchy, as disruptions at these levels can quickly cause instabilities throughout the chain.
Mapping is a common method for organisations to track and visualise their products through the supply chain, and it can ultimately lead to greater visibility and control. However, it is worth mapping out not only how the supply chain works as a process but how it fares from a legal standpoint, too.
For instance, it’s wise to invest in reviewing and updating contractual protections to ensure contract terms are robust and flexible to future-proof against disruptions.
To safeguard supply chain resilience, allow for flexibility in contracts and consider whether it is appropriate and achievable to avoid exclusivity agreements and to potentially shorten the supply chain by bringing suppliers closer to home. By mapping and analysing ahead of time, organisations can avoid unnecessary confusion and delays while achieving desired outcomes.
Businesses should also scrutinise their supply chain more closely by looking at the legal contracts they rely on, and assess how they can structure the supply chain to mitigate risks and ensure its resilience during times of unpredictable global shortages and crises.
Unfortunately, it is not possible to avoid unforeseen events in supply chains, as was demonstrated by the blockage of the Suez Canal by the mega-container Ever Given in March last year.
However, even the impacts of unpredictable events can be mitigated by understanding the structure of your supply chain, investing time in key supplier relationships and ensuring appropriate contractual protections are underpinning your supply chain activity.
While the legal and regulatory landscape of the full supply chain can seem overwhelming, it is best to start working through it as early as possible. It is critical to identify the key legal, regulatory and compliance issues that need to be dealt with at each stage of the supply chain, be that for the manufacturer, distributor, retailer or an authorised representative.
Doing this early ensures enough time to overcome any regulatory hurdles and put the proper contractual and other protections in place with suppliers.
Regulatory compliance represents immense complexity and requires an in-depth knowledge of the regulation in question and the markets and scenarios it applies to.
Therefore, ensure your legal adviser understands your sector so you can be confident you know what each stage of the supply chain requires. This will enable you to have appropriate compliance procedures without taking on more liability than you should.
Nick Lees is a partner in the litigation and dispute resolution team and Aaron Dixon is a senior associate in the commercial team at legal firm Walker Morris