Challenges in the supply chain – fight or flight?
Following the Government’s announcement for all non-essential workers to work from home and for pubs, restaurants and non-essential shops to close, thousands of businesses across the UK are now embedded within the ordered lockdown. Some have found creative ways to adapt, but many still feeling the understandable strain.
Business are not only adapting to a change in working environment (with many having switched to remote working), but many have also been forced to adapt their supply chain to respond to demand and to react to the global disruption affecting their operations. For some, these challenges will only be intensifying as the lockdown continues, but many are now starting to look beyond the lockdown and what life will be like afterwards. Not only must businesses and service providers ensure they can continue to provide the level of service expected of them, they are battling to ensure they ride the current storm and also adapt successfully after COVID-19.
You only need to take one look at the news channels to see it littered with examples of ways business are adapting positively. Of the most high profile, we have seen a consortium of British manufacturers taking part in the Ventilator Challenge UK to deliver a record number of ventilators to the NHS in a short space of time. We have seen supermarkets, restaurants and pharmacies switching their operations to focus on key products and delivering to the most vulnerable. We have seen gyms and fitness centres providing live workouts, as well as football clubs and players opening their hotel doors to NHS staff. More recently, we have seen a number of well-known consumer brands step up to produce NHS protective equipment. The response to COVID-19 has been described as nothing short of a “wartime effort”.
Whilst workforces are showing their resilience and ability to adapt to a change in working conditions, vulnerabilities in the supply chains both in the UK and globally are nevertheless being exposed as the disruption takes hold and manufacturing outfits are finding their exports restricted, creating difficulties in delivering. The lockdown rules of some countries mean that their imports and exports are restricted, whereas some are continuing, causing inevitable breaks in the supply chains across the globe.
As a result, businesses are undoubtedly finding themselves looking deep into their supply chain and contracts in place to ascertain how they can react, now and going forward. We have considered steps businesses can take to mitigate their position and look forward. As a starting point, businesses should:
- Review their underlying contracts with suppliers and customers before taking decisions to suspend supplies and cancel orders. Seek legal advice at the earliest opportunity. Some contracts will contain force majeure clauses. The application of the doctrine of frustration is also being brought to the fore.
- Maintain a dialogue within the supply chain. Talk to suppliers, manufacturers and customers and discuss how they are adapting and how best companies can work together. Relying on force majeure clauses or frustration is rarely straightforward and is fact sensitive, so negotiating a mutually acceptable solution is often preferable.
- Mitigate losses. Assess alternatives and contingencies in place and how quickly these can be brought into effect and at what cost. As above, communication is crucial.
- Check insurance in place as to what losses could be recovered and take advice on that.
- Take advice on potential regulatory issues to ensure ongoing compliance as the manufacturing of products change. This will also ensure standards are maintained and product liability issues are avoided
- Keep a record of the steps taken to adapt and new (and ever-changing) measures in place. This may prove important in the future, both in the event an insolvent event occurs (in which case directors’ decisions could be scrutinised), but also to assess long-term changes to supply chain operations when businesses return to normal.
Looking beyond COVID-19 and in addition to the above, wider reviews of supply chains are inevitable to ensure resilience going forward. Examples will be: looking at where issues occurred during the pandemic and look to diversify going forward both at a supplier level and geographically to reduce risk by not putting all of their eggs in one basket and reviewing IT systems to ensure lines of communication with others in the supply chain are resilient.
Many businesses are likely to find themselves implementing measures taken during the COVID-19 pandemic long-term where they have proven to be successful. Legal advice should be taken to assess the legal impact of those changes and how best they should be implemented. The team here at Charles Russell Speechlys would be happy to discuss any concerns you have, so please do feel free to contact us for more information.
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