How to ensure your manufacturing supply chain is secure

The UK manufacturing industry is a crucial aspect of our economy accounting for a total of over £450bn in 2023.

Despite this, the government’s ‘Industrial Strategy’ green paper has highlighted that the Purchasing Managers’ Index (“PMI”) has been on a downward trend. This is likely due to the budget and the concerns that many businesses have had following this. In addition, over recent years, challenges such as global unrest, the rise in energy prices and an increase in inflation have affected the manufacturing industry significantly, specifically where their supply chain is concerned.

Risks within the supply chain range from contractual disputes and intellectual property issues to breaches of regulatory compliance. Therefore, it is crucial to understand the specific obligations and liabilities of both your business, and that of your supplier.

Proactive risk identification through regular assessments and audits can prevent costly legal issues down the line. Furthermore, ensuring transparent communication within the supply chain encourages early detection and resolution of potential legal problems.

Due diligence

It goes without saying that ensuring your company complies with laws and regulation is imperative. This is not only a legal requirement, but it also speaks volumes about your company’s integrity and standards.

The first step is to ensure that you are conducting robust due diligence on your supplier, therefore ensuring they are adhering to applicable laws and regulations. This will not only minimise your risk of legal problems, but also, protects the reputation of your business.

Technology

Many businesses are now implementing a heavy focus on technology and artificial intelligence within their supply chain processes as it enhances visibility and control, making it easier to identify and address risks proactively.

Contract management

Implementing effective contract review processes are central to mitigating legal risks in the supply chain. This ensures that all contracts with suppliers are clear, legally binding, and enforceable.

It is important for all contracts to explicitly include the responsibilities, obligations, and expectations of all parties, including compliance with applicable laws and regulations. Regular review is also important to reflect changes or recent operational requirements, this will hopefully prevent disputes and ensure smooth supply chain operations.

Termination clauses

When there are problems within the supply chain, especially whereby the supplier is in financial difficulty, it is likely that the contractor will want to terminate the contractual relationship. To be able to do so, a robust termination clause clearly outlining the position is required. You may also want to consider including financial distress and change of ownership triggers.

Contracts in the event of a breach

The liability of a party can also be limited within a contract; one way of doing so might be to exclude a party from claiming certain categories of loss such as consequential and indirect loss, loss of anticipated savings, revenue or data, or via liquidated damages provisions.

Thinking about these considerations from the outset allows parties to plan ahead. If you engage with sub-contractors, it is also important to carefully investigate their contracts and assess whether relevant terms flow down into their agreements too.

International trade regulations

If your business is involved in international trade, it is imperative that you understand and comply with any additional regulations that may be implied by local laws. Engaging with experienced legal experts can provide you with valuable insights and guidance to assist you in implementing robust contractual measures and protections that address the relevant international requirements to avoid penalties and delays in your supply chain operations.

Sustainability

Consumer demand and regulatory trends are driving manufacturers to invest in a more sustainable supply chain. There are legal risks which can arise from failing to meet sustainability targets or engaging in unethical practices.

Conducting regular ESG assessments can assist with identifying potential legal and reputational risks. The move to more sustainable practices has allowed the industry to become more creative with their processes once the materials are being produced into products, for example, de-carbonising the production of glass. That said, creative processes will also require careful contract creation to ensure compliance with regulations.

Conclusion

As the global market continues to evolve and change, so do the associated legal risks. Having a comprehensive understanding of the legal landscape and the on-going challenges within the industry will allow you to drive your business and supply chain forward.

It is an exciting time to be working within manufacturing, but alongside that, it is important not to lose sight of the key foundations required to protect you and your business in the supply chain.

In brief, always ensure your business is aware of the benefits and risks associated with due diligence, technology, contract management, international trade regulations and meeting your sustainability obligations.