This article appeared in the March/April 2023 issue of MiMfg Magazine. Read the full issue and find past issues online.

It’s a tumultuous time in the manufacturing industry as the supply channels continue to struggle with reverberations from the COVID-19 pandemic and related issues like rising material costs, parts shortages, inflation, logistical bottlenecks and labor and staffing issues. It’s clear that suppliers need to adapt to changing realities. 

Michael Brady, executive partner at Warner Norcross + Judd LLP and co-chair of its large Automotive Industry Group, suggests that it’s a good time to conduct a thorough review of your existing contracts to ensure you understand the contractual obligations that govern your upstream and downstream relationships. 

Best Part of My Job

Helping my clients. It is extremely rewarding to use my legal skills, along with some creative thinking and determination, to make their lives a little better.

“When is the last time you’ve conducted a thorough audit of your contracts?” Brady asks. “For many suppliers, it’s been too long. With all the churn in the industry today, it makes sense to review your key documents to ensure they really protect you from all the things that you need protecting from in 2023. Agreements with your customers and suppliers can be the difference between profitability and distress, or between winning or losing a dispute in the future.”

The pandemic forced many manufacturers to face gaps in their contracts, long-term agreements and other important documents. And in many instances, according to Brady, they were surprised with what they found. 

“Companies often assume that they have a long-term agreement with their customers or suppliers, but often times they don’t,” Brady says. “In many manufacturing sectors, and automotive in particular, there’s not always a single, clear contract that everybody signed. There can be a host of documents, such as quotes, purchase orders, terms and conditions, invoices and so on, that can all impact the terms of the relationship. It’s important to understand how the documents interact.”

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Active listening is an incredibly important skill. Too often people want to hear themselves talk and don’t appreciate another’s point of view. Listening, and asking questions to understand, is a critical talent that is too often overlooked. 

Brady offers three steps to take in reviewing your contracts:

• Identify your most important customers and suppliers and “audit” those contractual relationships — the quotations, POs, LTAs and the like. Conduct a legal risk assessment of your current contractual rights and obligations. Do you actually have the long-term agreement you think you do?
• Review your standard, boilerplate RFQs, quotes, POs, LTAs, invoices, acknowledgments and terms and conditions that you use for new business. Do they protect you as much as they could? When is the last time they were updated? Do they reflect current market conditions?
• Take time to conduct legal training of your sales and purchasing teams. It can be worth its weight in gold. This allows the executive team to implement or re-enforce contracting strategies and goals and ensure that employees understand how best to position your company and its products during the contract negotiation process.

Taking the time to get a handle on your current supplier and customer agreements will pay dividends now and in the future. Warner works with dozens of automotive companies to support their contract review process.

Warner Norcross + Judd LLP is an MMA Premium Associate Member and has been an MMA member company since June 1995. Visit online: wnj.com.