20 MiMfg Magazine May / June 2022
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Protect Your Supply Chain : Top 5 Action Steps Manufacturers Can Take Now
By Linda M . Watson • Clark Hill
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 .
1 . 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 .
2 . 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 .
3 . 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 .
4 . 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 .
5 . Location , location , location . To limit the disruption caused by transportation snags and delays , carefully consider where your suppliers are located before awarding work . 6
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 lwatson @ clarkhill . com .
Clark Hill PLC is an MMA Premium Associate Member and has been an MMA member since February 1908 . Visit online : clarkhill . com .