I recently listened to a fascinating podcast on Supply Chain Brain where Supply Chain Attorney, Sarah Rathke and Management Consultant, Rosemary Coates, are interviewed by presenter Robert J. Bowman about their co-authored book, Legal Blacksmith: How to Avoid and Defend Supply Chain Disputes. Ms Rathke and Ms Coates (collectively, “the authors”) describe their book as one about “strategic thinking” and while they acknowledge there are many legal issues in the supply chain there are many practical difficulties that arise and need to be addressed appropriately as well. Ms Rathke and Ms Coates provide food for thought and provide tips for how risks can be avoided in the supply chain process. Three of these tips are considered below. You can listen to the full podcast here - http://ow.ly/10hOfp .
- Be aware of and prepared for legal and cultural differences
Some of the legal and practical difficulties that arise in supply chain transactions today are those which relate to the globalization of the supply chain. Not only do legal issues arise due to confusion over the jurisdiction that applies to certain transactions and other related issues, there are also practical difficulties that arise in this context - e.g. due to cultural misunderstandings with differing business cultures. One example of a problem that could arise is where one party thinks they are just talking at the RFX stage of a transaction, while the counterparty interprets this discussion as both parties entering into a contract. The authors stress the importance of ensuring you communicate your intentions each step of the way and making sure you are capable of doing what you say you can do.
- Be aware of differences in intellectual property laws and plan your supply chain appropriately
The authors also cover another interesting dilemma - that relating to intellectual property. They note intellectual property laws are not the same all over the world and for this reason, if you are manufacturing parts of your products offshore you may do well to employ a strategy to reduce risk - e.g. a strategy that involves processing different parts of them in different factories so one location does not have knowledge about how the product in its entirety is produced.
- Effective communication is essential
Another important point stressed by the authors in their interview, is that a good contract is never a substitute for effective communication. They believe it is extremely important to constantly communicate all the way up and down the supply chain to make sure everyone properly understands their responsibilities. They speak about how this is particularly important when modifications are brought into the contract and about the problem of “hanging contract modification proposals”. This is where there has been some discussion about something that has to be modified in the contract but this has not been properly discussed, documented and implemented. This can often lead to problems later such as a dispute over whether in fact a modification was or was not agreed upon. They suggest dedicating a person to coordinate monitoring how the written terms are being carried out in practice.
So the above are 3 ways for preparing for and responding to risks in the supply chain process. What are your thoughts are on what the relevant risks are and how can these be avoided?