Legal risk management of global supply chains
Protect your supply chain or pay the price
Supply Chain Operations Reference: The supply chain consists of products, facilities, vehicles, and routes. Traditionally, all supply chain processes can be subdivided into five general categories: Plan, Source, Make, Deliver, and Return. Other terminologies are design, manufacture, sale, and delivery. Complex supply chains are made up of multiple combinations of these basic processes. Each of these five steps can be defined with three levels of details (Top, Configuration, and Process Element). On the top level, the scope and content for the supply chain are defined. At the configuration level, the company’s supply chain is configured in order to company strategy. At the process element level, there is a “fine-tuning” of the company’s operational strategy. It consists of process element definitions, inputs – outputs, process performance metrics, and best practices.
Cross-border supply chain: The shape, patterns, connections, and the whole topology of global supply chains are the result of a decade of deep economic integration of international trade and investment. Production processes that are often spread across dozens of firms operating in multiple countries increase the level of complexity. Under global supply chains, the distribution, outsourcing, contract manufacture of large components are outsourced to a variety of third parties. Commercial agreements typically have various interaction points between different supply chain actors. A contractual breach of one element might result in defaults, liquidated damages, force majeure, etc. upwards or downwards the supply chain.
Supply chain disruptions: In order to prevent supply chain disruptions, it is critical to identify and manage all types of legal risks. Main legal risks can be separated into contract risks including IP infringements and compliance risks including bribery and corruption. Contracting arrangements might depend on a small number of key suppliers and some industries are more vulnerable to legal risks than others. Insurance contracts should be adjusted to the specific situation and risk awareness of the participants engaged in international commerce.
Commercial risks as a result of the coronavirus are currently in the general focus. However, extraordinary risks also include the impact of sanctions on certain countries, individuals, businesses, and other entities as well as export control regulations for military or dual-use items. Suppliers will declare force majeure when they cannot deliver on time or possibly at all, or want to change the goods to be delivered. Buyers will declare a default, material adverse change, or use a similar concept to shield against contractual obligations due to an unprecedented drop in demand. Shipping companies will face issues as cargo levels will not meet fuel costs. Letters of credit will be blocked on the basis of a claim in fraud brought before a Chinese court. Some suppliers or buyers will face the risk of insolvency.
Personal Protective Equipment is a typical sensitive product in the cross-border supply chain. PPE is worn or held for protection against one or more safety hazards. This covers face masks, sunglasses and eye protection, gloves and gowns, helmets, certain items of clothing and footwear. The design, production, marketing, export and import of personal protective equipment is typically subject to a complex regulatory framework in Thailand and abroad, depending on certain risk classifications and in praxis the need to prove conformity with the European PPE Regulation 2016/425 and meet the Essential Health and Safety Requirements (EHSR) listed and described in the PPE Regulation.
Supply Chain Risk Asia – Virtual Summit – March 25-26, 2020
International conference: The supply chain risk environment is dynamic and continually evolving. Risks are increasingly being highlighted in companies’ publicly-filed financial statements. As supply chains become more strategic, disruptions are turning into top management issues. Designed for procurement and supply chain professionals worldwide, the 2-days summit gave attendees the opportunity to learn about the latest developments in the discipline of supply chain risk management, network with other professionals in the field and to bring home practical, actionable insight to make supply chains more resilient in Asia.
Thailand’s keynote speaker of the supply chain summit has been the Managing Director of the Bangkok law firm PUGNATORIUS Ltd. He participated in two sessions: (1) Panel Discussion with Real-Time Video Networking on March 26, 2020, 10:30 am Bangkok time, and (2) Supply chain disruption in the coronavirus era – the Thai legal perspective on March 26, 2020, 3:30 pm Bangkok time. 800+ executives watched the live show. All the replays are available at Supply Chain Risk Replays.
After the event: The conference was just another milestone for the law firm in advising international and Thai clients in the legal risk management of global supply chains. Commercial contracts have been an important practice area and field of competence for a long time.