Protect Your Supply Chain: Top 5 Action Steps Manufacturers Can Take Now
This article appeared in the May/June 2022 issue of MiMfg Magazine. Read the full issue and find past issues online.
While the disruptions to supply chains may not always be in your control, such as those related to climate or geopolitical issues, there are many factors within a manufacturer’s control that, if implemented correctly, may limit disruption, preserve customer relationships and mitigate financial repercussions.
Here are the top five action steps to take now.
- Develop an understanding of key terms in existing contracts. Manufacturers should review contracts with suppliers and with customers. Specifically, the terms that govern product delivery requirements, defaults, remedies for default, indemnification and force majeure provisions — particularly in situations in which manufacturers are experiencing or anticipating a supply chain issue that may cause a delay or failure to deliver. Understanding your rights with respect to suppliers and your obligations to customers is the first step in developing a strategy to try and achieve the best results possible if things go awry.
- Properly evaluate new vendors and suppliers. When sourcing to a new supplier or vendor, it’s critical to thoroughly vet them in advance. Vetting should include checking references, requiring evidence of financial strength, understanding their quality and control processes and protocols, and visiting their facility when practical. When vetting a new supplier or auditing an existing supplier, not only should you look at the financial health of the supplier, but also the company structure, location, capacity and digital security. The work you do up front in vetting a new supplier or vendor may reveal which is the best qualified to handle your needs or a weakness that can be addressed with additional or special contractual terms.
- Modify supply agreements and terms and conditions going forward. Manufacturers should modify supply agreements when they have the chance, which is upon renewal with an existing supplier and, of course, with any new suppliers. Adding or strengthening language that addresses supply chain performance, operational expectations and interfaces are paramount. This language or additional provisions should include terms requiring communications to manage the course of business such as advanced shipping notices, a commitment to respond to all customer messages within one business day or less, trained personnel to acknowledge orders and to act on all buyer requests, an electronic data interchange, inventory visibility in real time, a safety stock of products or parts and warehouse options. Updated terms may include the identification of sub-suppliers properly vetted by your supplier and disclosure of the vetting process. Updated terms may also require a list of alternative sub-suppliers, supply plans should there be a supply chain disruption, and inspections or audits of the supplier’s financial condition either routinely or upon concern by the manufacturer.
- Keep your options open. Having pre-approved alternative suppliers on hand or dual sourcing for parts and components has never been more important. It takes time to identify, vet and resource a program to a new supplier. Having that done in advance with annual updates or simply by employing a dual source can alleviate the chaos, pressure and financial loss that could occur when a supplier no longer has capacity, access to raw materials, or suffers a labor shortage.
- Location, location, location. To limit the disruption caused by transportation snags and delays, carefully consider where your suppliers are located before awarding work.
About the Author
Linda M. Watson, Chair of the Clark Hill Automotive and Manufacturing Industry group, represents businesses and public corporations in business and commercial litigation, supply chain matters, contractual actions, property issues, and copyright and trademark law. She may be reached at 248-988-5881 or firstname.lastname@example.org.
Clark Hill PLC is an MMA Premium Associate Member and has been an MMA member since February 1908. Visit online: clarkhill.com.