The Intersection of Supply Chain Risk and Contract Management (Part 2)

In the first installment to this series, we called out a recent article from Supply Chain Digest that did a good job tracing the supply chain materials and contracting flow in the recent horsemeat scandal in Europe.  It’s our view that companies might be better served confronting risk elements earlier in the procurement and supply chain process by addressing them at the point of contracting, after or during negotiation.

This might include, for example, considering the relative costs (and potential customer/margin impact) of the following types of clauses:

  • Limiting the ability of suppliers to sub-contract without approval (with significant penalties for infringement)
  • Requiring tier-one suppliers to provide real-time item/materials traceability to the lot (or equivalent) level and to maintain supply chain audit trails
  • Requiring tier-one suppliers to provide real-time item financial/invoicing traceability to the sub-tier supply chain
  • Lesser/greater indemnification based on contractual or extenuating activity

 

Of course the larger question here – which ties back to sourcing – is understanding and fully exploring the cost of contractual terms and agreements. This is an issue where sourcing should be involved. It’s also one that should involve the merchandising/direct operations side, in the case of food, retail and apparel. But above all it’s an item that procurement-centered contract management resources and legal teams should be actively involved with.

Technology can play an essential role here. Linking sourcing tools and contracting management may not be as essential as having the best possible advanced sourcing and advanced contract management applications, considering that there are no two vendors that are best of breed in the same area here.

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