Features & Analysis

How to deal with supply chain disputes

By Meta Panchamia, deputy head of civil litigation at Taylor Rose MW Solicitors

As businesses look to recover from a disrupted two years, it is becoming increasingly apparent that one thing could continue to provide a barrier to future success: supply lines.  Whilst there may have been certain issues in the past which came as a surprise, now delays in receiving some goods and services are almost becoming a trend, and not one which is welcomed by suppliers or customers. Failing to deliver on a supply contract can lead to legal disputes.

Risk assess

Supply chains have been impacted by a series of significant events beyond the direct control of contracting parties, including the Covid-19 pandemic, Brexit, shortages of containers and drivers, and last-minute cancellations and rerouting of vessels.

To assess your supply chain comprehensively, it’s necessary to have clear visibility of the legal terms underpinning each stage of the supply chain. This will help you understand the legal mechanics which are available to you in case disputes arise out of supply chain disruption and it will also help to identify your risk and exposure in the event of counterparty claims against your business.

If the legal terms you trade with are no longer fit for purpose, planning ahead before problems arise can assist with insulating your business against dispute situations.

Communication is key

A surge in economic demand as the country returns to “normal” life after Covid could mean challenging times will come due to the disruption to supply chains. There have been strains since the beginning of the pandemic, with a shortage of computer chips impacting on vehicle manufacturers and low stocks of some building materials being key indicators. 

The difficulties are likely to worsen in the near-term as delayed post-Brexit customs red tape finally came into force at the start of the year, and that is likely to be accentuated by surging demand due to the easing of Covid restrictions and a growing economy. The positive economic signs means great news for businesses but with supply chain disruption comes risk. 

A key consideration for any business is to ensure that these risks are communicated internally and that contracts are analysed to identify weaknesses that might result from supply chain disruption. Claims can involve significant loss of profits which can, unfortunately, bring your own business to its knees.

Five steps to success

The five key steps you need to take to protect against a potential disaster are

  • As mentioned above, review your supply chain and identify risk
  • Ensure risk is allocated
  • Keep it simple and automate where possible
  • Strengthen relationships with suppliers
  • Ensure proposed changes are implemented

Map out the risks

A supply chain map shows the connections between entities, and analysing those means highlighting the points where likely bottlenecks might be expected and can be fixed in advance. You may also want to consider diversifying the supply pool so that your business is not overly reliant on sole suppliers at critical nodes. It’s easy in everyday business to forget the potentially risky terms of contracts that were agreed a long time ago or a commitment which was included in the small print of your website, even.

Importing and exporting throws up different challenges

Importing and exporting can mean dealing with a myriad of different contracts. Keeping contracts with overseas suppliers simple is another way to help head off impacts of unforeseeable problems in the future. 

Where would the blame lie if, for example, a delivery is not on time and your client complains? You may have to refund your client and pay potentially significant losses if those have been incurred by your client. The client may also sue you irrespective of whether it is your fault that the contract with your supplier has not been fulfilled.

Under this scenario you will then be left to sue your supplier and possibly even the haulage company. Simplification could mean incorporating machine learning and AI in your supply chain which can have the twin benefit of reducing costs and identifying repetitive tasks that are prone to errors and therefore risk.

This is not a new problem

Covid-19 may have made this feel like a new problem, but supply chain risk is not new; it has increasingly been brought into public consciousness by recent global events. Although the Government is taking steps to try and shore up the current chaos, many consider what we are experiencing as only the start of a much bigger problem.

Supply chains need to flex and adapt to current conditions, and this includes reconsideration of the commercial contracts that underpin the trading relationships to capture future risks.

Protect Yourself

It is vital that you get legal advice if you are unsure. This could help and assist you to ensure your contracts will protect you. If you do encounter issues then legal advisors can also help to try to amicably resolve them and provide reassurance on how things can be resolved or how your position can be made safer.

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