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Lo8 3 Contract Negotiation Strategies To Reduce Supply Chain Risk
Lo8 3 Contract Negotiation Strategies To Reduce Supply Chain Risk
Lo8 3 Contract Negotiation Strategies To Reduce Supply Chain Risk
Businesses around the globe recognize that there is a new normal for supply chain risk
management. The pandemic’s impact on global supply chains exposed vulnerabilities, created
opportunities, and made embedding resiliency and agility into supply chains non-negotiable.
To weather future crises, supply chain leaders are placing procurement processes under a
microscope. Your supply chain contracts should also be reviewed and, where possible,
renegotiated to minimize risk. To do so, include provisions to help mitigate foreseeable and
unforeseeable risks to your supply chain. Specifically, you should consider the following three
provisions to reduce risk in your supply chain contracts.
But with increased transparency comes increased monitoring. As such, transparency and
monitoring requirements should be negotiated with flow-down provisions. These require your
suppliers to bind their own suppliers and contractors to the same requirements.
Including provisions that require your suppliers to provide transparency reporting helps reduce
the burden of monitoring transparency within your supply chains. Here are some examples of
such provisions:
Citing authoritative reports about the financial benefits of diverse, sustainable and ethical
sourcing is a key strategy that can assist with buy in when negotiating these provisions with your
suppliers.
3. Strong Contract Termination Clauses are Essential
Strong contract termination clauses can help protect your company from suppliers’ poor
performance by facilitating a fast and cost-effective exit from supplier contracts. This can free up
resources for developing relationships with better performing suppliers more quickly.
Your supplier contracts should clearly define a material breach. Depending on your particular
circumstances and risk appetite, this could include any one, or more, of the following:
Non-performance
Delayed performance or payment
Non-conformity with diversity, sustainability or ethical responsibility
provisions
Non-compliance with insurance requirements
Bankruptcy or illiquidity
Beyond Your Contracts: Communication and Relationship
Management are Key to Minimize Risk
If your supply chain contracts are the building blocks of your supplier relationships,
communication is the mortar that keeps the relationship intact. Communication promotes trust,
responsiveness, and a sense of shared responsibility that strengthens supplier relationships and
business outcomes. So, while your supplier contracts can provide structure for your risk
management processes, strong communication channels are just as important to help minimize
risk in a crisis.
Tags:
Contract Management
Negotiation
supplier relationship management
Region:
Global
Hannah Genton
After years of practice in one of Silicon Valley's leading law firms, Hannah Genton co-
founded CGL-LLP, a fully distributed transactional law firm focused on providing quality
services to our clients and great work-life balance to its attorneys.