Helping to support supply chain resilience

The aftereffects of Covid, along with global economic and political issues, continue to pressure industry and challenge supply chain networks.

Unfortunately, supply chain challenges show little sign of abating, with, more than ever, companies being required to proactively manage risk and anticipate market changes.

To help mitigate common supply chain challenges, companies can look to adopt some of the following resilience measures:

• Building stronger relationships with key suppliers and having prompt notification of any shortages, financial distress and challenges
• Putting systems in place to provide visibility across the extended supply network, to allow firms to better understand risks and drive specific actions based on priorities
• Developing agile working in production and distribution networks to help balance supply to demand, along with investing in supply chain planning and control to better respond to and predict supply chain issues
• Diversifying supply chains from a geographic perspective to reduce the supply-side risks from any one country or region
• Multi-sourcing key commodities or strategic components to reduce reliance on any one supplier
• Implementing well considered inventory to buffer against supply chain disruption
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  In addition to the aforementioned, careful contract negotiations with parties, along with sound diligence, can also help mitigate supply chain risks, improve party positioning and resilience to insolvency. Some recommendations include:
• Carefully reviewing contractual terms and the allocation of risk before entering into contracts
• Developing supply chain risk management and business continuity provisions in contracts
• Ensuring those managing the contracts are fully aware of obligations and the correct operation of the contract
• Maintaining accurate records to evidence rights, remedies or to defend against a claim
• Applying good due diligence to help recognise potential warning signs before embarking on any new relationship, including looking out for any profit warnings or signs that subcontractors are being paid late through the press or word of mouth.
• Checking the latest filed accounts on Companies House to help establish the other party’s financial health
• Securing a parent company guarantees or personal guarantees to help provide protection, in the event that the other party fails to meet obligations or becomes insolvent
• Implementing short payment periods to avoid build-up of non-payment or scenarios where invoices do not fall due for payment until after a counterparty enters insolvency
• Carefully drafting good termination/suspension rights and notification of financial distress clauses in contracts
  While it is not possible to avoid supply chain challenges altogether, by being aware of the market, negotiating contracts carefully and deploying example measures like those mentioned above, companies can look to be more resilient.

Companies that navigate turbulent market conditions, implement good diligence and adjust their strategies to be more prepared in the future look to ride disruptions more successfully.