There seems little doubt (notwithstanding some ‘help’ from the media) about the increasing frustration for both customers and their suppliers in some areas in terms of the inability for supply chain obligations to be fulfilled.
It’s pretty obvious now that the pandemic has accelerated the trend towards online retail leading to retailers having to increase their storage and distribution capacity. With continued global supply chain issues and Brexit, there is now a rush for warehouse space and capacity.
Companies continue to invest in automation and green energy (electric vehicles and the like) and so a stable and large energy supply is also top of the list.
Clearly though, establishing a resilient supply chain is important, but these are coming under strain by the current global turmoil.
As consumers or businesses, I think we already know some of the causes as:
- the after-effect of Brexit meaning fewer drivers entering the UK;
- increased border controls and customs regulations causing longer wait times, exacerbated by Covid disrupting HGV training and licence approvals;
- the breakdown in the supply chain not resting rest solely with delivery issues as in some sectors, the global over-demand for semiconductor chips and/or the rocketing price of raw materials is contributing to the problem.
For suppliers wishing to manage their risk, the first port of call for either party is to consider the terms of their contract and whether any failure here has caused a breach.
Suppliers should think about:
- how their delivery obligations are framed;
- does the contract’s “force majeure” clause assist the supplier
- whether their exposure to claims for delay by customers may be covered by an insurance policy;
- for manufacturing contracts, providing that ownership of goods passes to the customers upon manufacture, rather than delivery, so that those goods can be ring-fenced if the failed business’ assets are sold off;
- conducting due diligence on the supply chain beforehand to determine its financial health; or
- if the cause for delay is the fault of a third party, if there is some form of redress in the agreement with that third party.
Conclusions
A more commercial approach to dealing with supply chain issues is to be encouraged and supply chain risk is of course, not new.
Supply chains need to flex and adapt to current conditions, and this must include looking at commercial contracts that underpin the trading relationships to assess and address both current and future risks.
Being upfront about a delay in delivery, or delivery of fewer products than a party is contractually obliged to supply is the clearly good commercial practice, as is warning the customer as soon as possible beforehand to adopt contingency plans.
Remember that if a dispute does ensue, courts do look favourably on parties who have tried to resolve the problem themselves and sought to mitigate their losses.
Regards to all
Roger
