When I was a kid growing up in the 1980s, Air Supply was a popular music duo with songs like “Lost in Love,” “All Out of Love,” and “Even the Nights are Better.” Nowadays, another phrase with the word “supply” in it – supply chain – is becoming popular across Corporate America and for in-house counsel.
Last month, President Biden signed an Executive Order on America’s supply chains. This Executive Order is a must-read for all in-house counsel, it underscores how companies are very reliant on third parties to enable solutions for their customers and that in-house lawyers play an important role to help ensure that their companies’ supply chain are resilient and secure.
Let’s first provide some clarity as to what is meant by a supply chain. A recent post in Supply Chain Digital offered this excellent definition of a supply chain: “A supply chain is defined as the entire process of making and selling commercial goods, including every stage from the supply of materials and the manufacture of the goods through to their distribution and sale.”
The focus of this Executive Order involves a review of key supply chains with the longer term goals of the United States becoming less dependent on foreign goods and to help bolster American manufacturing. The Executive Order involves a 100-day review of products in these four areas: semiconductors, high-capacity batteries, pharmaceuticals and critical minerals/related materials. In addition, there will be yearlong reviews of six industry sectors.
Without a doubt, supply-chain law is a growing legal practice area that all corporate counsel will need to become increasingly conversant in so they can provide high impact legal services to their clients.
Here’s a list of considerations for in-house legal teams to keep top of mind as their deliver supply chain-related legal support to their clients:
Procurement is Paramount: Nearly every organization has a procurement or purchasing group function that has primary responsibility for establishing relationships with suppliers and other entities that are part of a supply chain. In my experience, sometimes the legal support associated with this group has not been as highly valued when compared with other in-house legal practice areas. As we see more focus on the potential opportunities and challenges associated with supply chains, it’s important for all legal teams to invest the appropriate amount of legal resources, time and attention to properly support supply chain-related legal work.
Reviewing & Onboarding Supply Chain Partners: A variety of legal entities can be part of a supply chain network and they all need to partner well together to help ensure success. Legal teams can help their supply chain groups by assisting in the appropriate vetting of supply chain partners prior to consummating a relationship with them. Since many lawyers have deep skills in the area of due diligence, they are in a unique position to help their clients identify any potential “red flags” with potential supply chain partners. Consider developing a scalable and detailed review process akin to a “checklist” when evaluating potential members of your supply chain. Also be sure to develop an appropriate onboarding process for new supply chain partners so they can learn more about your business and are set up for success.
Trustworthiness of Supply Chain Partners: A wise person once said that “trust cannot be claimed – it must be earned.” Given the proliferation of data privacy laws, the increased boldness of cybercriminals and the fact that technology and data are playing a bigger role in our lives, companies need to clearly understand the steps that supply chain partners – and members of their own supply chain – take to properly secure data. Be sure to include your data privacy, cybersecurity and compliance experts in the process for determining whether or not you can truly trust members of your supply chain to protect the highly important data that may be shared with them and that they will share with others in your supply chain network. It is absolutely critical for members of your supply chain to earn your company’s trust on a constant basis as it relates to data security.
Thoughtful Agreements: Be sure to establish the appropriate written agreements with your supply chain partners that are comprehensive enough to address the totality of your business relationship and are also very clear and straightforward. Organizations should develop standard template agreements to use with their supply chain partners – as well as “fallback”/alternative provisions to use as needed. Think about incorporating your companies’ code of ethics/integrity principles as part of those agreements. As the business changes, also refresh those standard agreements as needed.
Deepening Relationships with your Supply Chain: It’s important to partner closely with the members of your company’s supply chain – especially as they may also be your customers and competitors. Designate senior business leaders at your company who can serve in “Executive Sponsor” roles to the individual members of your supply chain. Perhaps there are also opportunities to convene quarterly business reviews or “check-ins” with members of your supply chain so that you can deepen relationships and mitigate the likelihood of any potential business or legal issues from occurring.
Breaking Down Silos & Center of Excellence: Often times, many dispersed company employees and teams are involved in building supply chains for their respective organizations. As a result, organizations may become siloed in their approaches for managing their respective supply chains and may not properly collaborate. Look for opportunities to centralize how you work with your supply chains, actively share supply chain best practices/lessons learned and identify lawyers and business leaders who can serve as your company’s supply chain “Center of Excellence.”
Responsible Sourcing: Companies should have high standards as to what they should be expecting from their supply chain – especially as it relates to human rights, labor, safety, health and ethical considerations. In the words of Brene Brown, “clear is kind,” so be sure to drive absolute clarity with supply chain members about those expectations. Also, from a corporate social responsibility perspective, companies should be transparent to the public about their focus on responsible sourcing.
Sustainability: Companies across many industries are increasingly focused on sustainability and reducing their carbon emissions as a strategic business imperative. We may also see further regulation in the sustainability space. As you build and evolve your supply chain, consider partnering with companies who are proactively committed to environmental and sustainability considerations and learn from them.
Diversity & Inclusion: As many of us know, diverse and inclusive teams consistently perform non-diverse and less-inclusive teams. Driving greater diversity and inclusion within your supply chains will result in better business outcomes. In addition, as you develop your supply chain network make sure that you have a deep enough and broad enough network so that you are not reliant on just one – or a few – companies. Make sure that your network is well-represented from a geographic diversity perspective and ideally are not based in just one region or country.
Leverage Trusted Technology: As the supply chain area grows, increasingly there are leading technology solutions that can help enable your supply chain to become more productive and resilient. Think about opportunities for deploying highly trusted technology solutions that are rich with product features to help manage your supply chain operations. For instance, Microsoft Dynamics 365 provides cloud-based solutions that are focused on enhancing a company’s supply chain resiliency and agility.
Every company needs to be increasingly focused on their respective supply chains. As in-house counsel, we are in a unique position to help our business clients effectively navigate the growing complexities of the supply chain space.