Contracts in business are a classic example of a double-edged sword. On the one hand they provide specific and precise details of the commercial terms agreed between two companies and legal redress against unscrupulous traders; on the other they can sap enthusiasm, detract from the real purpose of doing business together and, in extreme cases, poison relations before a single order has even been placed (as well as incurring huge legal bills from avaricious lawyers).
As the trend towards deeper, more collaborative customer-supplier relationships has gathered pace in recent years, some have questioned whether contracts are really needed. After all, the success of such relationships depends on the level of trust between key people on both sides, not hundreds of pages of impenetrable, unpunctuated legalese. Filing cabinets full of over-engineered contracts gathering dust is proof of their irrelevance, say the critics.
Such sentiments are the business equivalent of leaving your front door unlocked, or even wide open – a nice idea in theory, but inadvisable in practice. While constantly having to refer to the wording of a contract is probably a sure sign of a broken relationship, the speed and complexity of modern business, combined with corporate risk, responsibility and regulatory requirements, mean that contracts are as inevitable as the disputes they are designed to govern.
Contracts as part of the solution
Avoiding supply chain disputes is the theme of a new book by Rosemary Coates, a Silicon Valley-based supply chain consultant and adviser, and Sarah Rathke, a partner at law firm Squire Patton Boggs in Cleveland, Ohio. Well-written contracts tailored to reflect the interests of both customer and supplier are part of the solution, they argue, but so too is good communication, a fair allocation of risk and reward, and an ability to resolve conflicts when they arise.
The intended audience for the book includes not only supply chain practitioners who want to structure supplier agreements in a considered way from the outset, but also lawyers who need to understand the scope and complexity of extended supply chains.
Despite its bland title, Legal Blacksmith has two immediately obvious qualities. First, it takes a truly end-to-end view of supply chain, encompassing the full range of activities from raw material sourcing to product recalls. Second, its approach is business first and highly practical: its 23 chapters start with a clear and up-to-date explanation of the topic and supply chain issues, before moving on to consider the legal context, relevant laws and noteworthy cases. They end with helpful bullet-point lists of lessons learned.
Dissecting complex issues
Among the thorny and fascinating issues Coates and Rathke tackle head on are joint product design and development, the integration of components and software into finished products, and the implications of inaccurate demand forecasts for suppliers. And they don’t confine themselves to legal advice: in the case of product development, for example, they write that: “Disgruntled suppliers who are not meeting their margins on a program are not likely to dedicate the necessary resources to making the program work, will be inattentive to issues that arise, and will be less accommodating of any necessary changes. The consequences… will inevitably be increased costs for buyers.” Amen to that.
In subsequent chapters they dissect everything from Chinese factory auditing, counterfeiting, corruption, conflict minerals and other types of supply chain risk to global trade regulations, technology’s impact, as well as executives’ responsibilities to shareholders.
Inevitably, covering such a breadth of issues in 300 pages means that some receive only brief attention. For instance, I would have liked more than a single paragraph on how to treat intellectual property created in co-development situations – a tricky and increasingly common problem for supply chain organisations involved in innovation projects.
Addressing both a supply chain and legal readership in the same book does mean skipping through a certain amount of foundational material, particularly for the former. And there is a fairly strong bias towards companies operating under US law, although legislative differences with other countries are also noted.
Overall, however, the authors should be congratulated for their practitioner (and practical) focus, for taking an integrated view of supply chain management, and for tackling complex issues in a clear and concise way. Judged against their stated aim of encouraging practitioners to “think ahead to avoid supply chain disputes – and… to maintain harmonious and effective supply chain relationships”, this book certainly scores well.
