By: Jim O’Brien
Whether a manufacturer, supplier or purchaser, the risk posed by interruption of supply is a critical consideration but yet, not always addressed in supply contracts. Rather, many supply agreements appear to rely on the supplier to manage its own resources and supplies, and the answer to the “Or What?” inquiry results in a remedy for such events being an inadequate claim for damages. This failure to address exposes the company to risk based upon decisions of its supplier(s) which can result in catastrophes such as inability to produce or supply product, adversely impacting customer relationships, or even placing the business as a whole at risk. While perhaps acceptable within a fictitious contractual Shangri-La, that is not the business world we live and work in and our world requires a different approach.
Best practices dictates that multiple sources of critical supplies or services be contracted. However, that practice many times is not achievable due to a number of reasons including contract quantities being too small or required supplies or services availability being limited due to economic or intellectual property reasons. While avoidance of sole source relationships may not be achievable, risk mitigation within all supply relationships should include disaster and business continuity plan requirements, obsolescence, cessation of production and resource allocation provisions, and insistence on such should occur where the supply relationship is “critical.”