A strong supply chain structure is crucial - comment

The impact of Covid-19 on supply chain sourcing and logistics has shown that establishing greater resilience should be a priority for businesses.

Friday, 11th September 2020, 7:30 am
Finding the right supply chain partners has always been key to success, says Horn. Picture: Andreas Pohlmann.

But setting up a resilient supply chain is only half the battle. Continuing to monitor, manage, audit, evolve and resolve difficulties in the supply structure remains critical. Solid contractual controls can assist, although are at their best when used within well-run governance arrangements.

Businesses seeking to improve their supply chain approach may hold only limited relevant information about their suppliers. This can present problems from the outset – for example, seeking greater supply diversification without an understanding of existing supply chain sources can lead to flawed decision-making and poor mitigation of risk.

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Obtaining a more comprehensive picture of your supply chain should be a priority for strategic structuring. It will also assist with ongoing supply chain management, as you will have better visibility of inventory and flow throughout the supply chain, enabling issues to be identified and dealt with earlier.

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The pandemic has placed enormous emphasis on short-term decision-making, often at the cost of longer-term priorities. However, building a resilient supply chain demands a roadmap that extends well beyond immediate priorities. Considerations can range from the commercial – say, minimum terms and volumes – through to the technical, such as diversity of supply sources for core product technologies.

Lessons can be learned from how business IT strategies have played out, with many examples of firms becoming increasingly hampered by IT architecture developed over time with limited longer-term planning. Effort should be invested into identifying and evaluating how decisions made now on delivery sources, commercial terms or legal commitments in the supply chain, might affect future agility and supply risk.

Putting in place a more resilient supply chain may require further finance to enable the changes. Access to finance may be more limited in the immediate aftermath of Covid-19, and alternative sources may need to be considered. More innovative solutions could be required and, for example, original equipment manufacturers at the top of the supply chain should consider how they can best support their suppliers to access finance.

Competition law could interfere with how a business wishes to structure and manage its supply chain. This deserves consideration early in the structuring process. Tariffs and other barriers to cross-jurisdictional work are hardly a new thing.

Barriers

Nevertheless, the combination of logistical and legal barriers to transport due to Covid-19, geopolitical impacts on trading relationships, and Brexit, mean navigating the current trade environment is particularly challenging. These barriers in themselves should be driving businesses to re-assess related supply chain resilience issues.

There is growing complexity around intellectual property (IP) ownership, rights and restrictions in supply chains. Oversight and appropriate control of access to key IP will be vital for many firms and their supply chains. Finding the right supply chain partners has always been key to success.

Interestingly, in the run-up to the pandemic taking hold, it was notable that factors like alignment of social, environmental and other ethical values were increasingly becoming key priorities. The challenge will remain how to combine satisfying these requirements while maintaining supply chain resilience.

While these factors can certainly co-exist, appropriate due diligence will be necessary to identify sufficient alignment of culture, approach and longer-term business planning. Achieving a supply-chain structure that provides the necessary sources, agility and dependability has its challenges. But the potential cost of not doing so, in terms of business survival and loss of market position, is now starkly apparent.

Michael Horn, legal director, Pinsent Masons

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