In the UK businesses can use a number of legal tools if faced with a dysfunctional supply chain.
- Price adjustment clauses to pass on some of that additional cost to the customer
- If a supplier is refusing to supply, the customer can seek to enforce its contractual rights to require ongoing supply
- If a supplier refuses to supply unless payment above the contract price is made, the customer may agree the price increase under protest, with the option to recover the price increase via a subsequent claim for economic duress
- A customer may have the right to terminate for failure to supply
All the above, however, could be seen as the “nuclear” option, especially if the business has had a good relationship with the supplier.
If the primary aim is to keep suppliers on board, then initiate communications with supply chain partners at an early stage once a potential problem is identified.
Nevertheless, the threat of these remedies can have the effect of bringing parties back to the negotiating table.
Another possibility in dealing with supply chain problems is to focus on short-term, day-to-day actions, such as expedited delivery services to meet demand or speeding up production by purchasing components on an emergency basis.
A cross-functional team to identify and manage supply chain issues is also a good idea. It could be used for testing financial stability under a range of scenarios and for planning for extreme supply-and-demand disruptions by identifying and ordering components earlier than usual and allowing extra time for delivery, accounting for the higher cost of energy, materials, and transportation; and checking inventories of critical materials to reprioritize production should shortages seem inevitable.
It may also be wise to reconsider whether just in time strategies are still appropriate.
Finally, to help mitigate longer-term, more permanent damage from supply chain disruptions is to maintain a strategic priority on customers.
Past economic downturns suggest that customers tend to stick with companies that stay closest to their core offerings.
Your first step in any situation is to know exactly what financial position your company is in.
I have a cash management tool that can help you and it is free to download.
Turnaround advisers, like K2 Business Partners, are very experienced in supporting, helping and understanding the worries and fears of those facing possible insolvency.
If you want to know more about how we approach turnaround and restructuring this recent post will help you.