For many in-house lawyers, it’s easy to understand the importance of the relationships between the general counsel and the CEO, CFO, CMO, and others key business leaders. But one often overlooked yet still critical relationship is the one between the general counsel and the supply chain management team.
As the Covid pandemic exposed, the logistics of the supply chain are critical to the success (or failure) of most companies. Outsourcing, uncertain global markets, political unrest, environmental issues (man-made or not), and basic capacity can all – along with many other factors – impact the ability of companies to get the goods and materials they need to conduct business.
Consequently, the relationship between the general counsel and the supply chain management function has taken on more importance than at any time in the past 50 years. The role of the general counsel (and by extension the legal department) goes way beyond merely reacting to legal issues; it involves proactive collaboration to support and enhance the supply chain function. Below we discuss what that entails.
What is supply chain management?
Supply chain management involves the coordination and management of a complex network of activities involved in producing, delivering, and returning goods and services. It encompasses the planning and management of activities involved in sourcing, procurement, conversion, and logistics. It integrates supply and demand management within and across companies, aiming to ensure the smooth (and efficient) flow of products, services, and information from suppliers to customers. The smallest hiccup can cause a chain-reaction that deeply impacts businesses and consumers all around the world.
Supply chain management involves the following:
- Planning – forecasting demand, planning production schedules, and aligning supply chain activities with business objectives.
- Sourcing – selecting suppliers who provide the necessary goods and services to meet production requirements. This includes negotiating contracts and ensuring that suppliers meet quality and delivery standards.
- Production – converting raw materials into finished products.
- Logistics – the movement, storage, and delivery of goods throughout the supply chain. This includes managing transportation, warehousing, inventory control, and distribution networks to ensure that products are delivered efficiently and on time.
- Delivery – transporting finished products to customers on time.
- Returns – the process of returning products from customers to the manufacturer or supplier.
The role of general counsel in supply chain management
Just a cursory glance at the above tells you that the general counsel (and the legal department) can add tremendous value when assisting the business with each of these objectives. Two areas jump out – legal compliance and risk management. One of the primary responsibilities of the general counsel is to ensure that each part of the company’s supply chain complies with all applicable laws and regulations. This includes import/export laws, labor laws, environmental regulations, and industry-specific standards. She also oversees the drafting, negotiation, and enforcement of contracts with suppliers, distributors, and other third parties, ensuring they are legally sound and protect the company’s interests.
Risk management is another critical area where the general counsel plays a vital role. By working with the business to identify potential legal and business risks and developing strategies to mitigate them, the general counsel proactively helps safeguard the supply chain from disruption. She does so by, among other things, ensuring the right type of insurance is in place, conducting due diligence on suppliers, implementing compliance programs, dealing with regulators, and providing guidance during crises such as breaches of contract, regulatory violations, or supply chain interruptions.
While these are both important, there is more for the general counsel to do. She should also assist in developing and implementing policies and procedures that govern the supply chain, ensuring they align with legal requirements and ethical standards (internal and external). She also helps ensure that supply chain practices are consistent with the company’s overall corporate governance framework, including environmental, social, and governance (“ESG”) criteria. Likewise, when disputes – inevitably- arise, the general counsel handles litigation and arbitration, negotiating settlements and resolutions to minimize litigation and its associated costs.
Lastly, the general counsel provides strategic advice on mergers, partnerships and alliances within the supply chain, ensuring they are structured to maximize benefits to the company while minimizing risks – for example a joint venture. In mergers and acquisitions, she reviews legal aspects of the target company’s supply chain and advises on integration strategies or necessary changes.
How the general counsel can be a better partner to supply chain management
To be an even better partner, the general counsel should partner with the head of supply chain logistics and otherwise get involved early in supply chain planning and decision-making. Consistent involvement allows the general counsel to anticipate legal issues and provide timely advice. Consequently, establishing regular meetings with supply chain leaders can help the general counsel stay informed about supply chain needs, challenges, and strategic initiatives and share their own thoughts and observations.
Here are some other areas where the general counsel can improve her value to this area of the business:
- Education and training – developing and delivering training programs for supply chain personnel on relevant legal topics, such as contract law, compliance requirements, and risk management.
- Reduce contracting friction – creating streamlined, user-friendly contract templates and implementing efficient contract review and approval processes can reduce delays and improve turnaround times.
- Collaborative risk management – conducting joint risk assessments with the supply chain team to identify and address potential legal and strategic risks in supply chain operations fosters a collaborative approach to risk management, including compliance programs around supplier due diligence procedures, audits, and monitoring.
- Strategic partner – developing a deeper understanding of the supply chain function, including its goals, challenges, and key performance indicators (KPIs), enables the GC to provide more relevant and practical legal and strategic advice.
- Innovation – supporting the supply chain team in exploring and implementing innovative solutions, such as blockchain for supply chain transparency or AI for demand forecasting. When the legal department is flexible and open to new ideas and approaches it can further enhance efficiency and effectiveness for any part of the business.
Three things you should do next
Looking at the above and the current state of supply chain management, there are a number of things general counsel can do right now to help. Here are three:
- Embrace technology – identifying and using advanced legal technology solutions can streamline legal processes and improve collaboration with the supply chain team. This includes adopting AI tools, Blockchain, contract management software, compliance tracking tools, and risk management platforms. Technology also covers data security, a critical aspect of proper supply chain management.
- Foster a culture of compliance – everything starts with compliance. There are too many places where the supply chain can break because of failure to follow the right practices or the applicable laws. Promoting a culture of compliance within the supply chain function ensures that legal and ethical standards are embedded in everyday operations. Staying abreast of regulatory changes that impact the supply chain is essential. The general counsel should proactively monitor and communicate these changes.
- Develop a crisis management plan – at some point, something is going to go wrong with the supply chain. Don’t let the business get caught flat footed. Creating a crisis management plan is crucial for responding effectively to major disruptions. The general counsel should work with the supply chain team now to develop and regularly update a crisis management plan, ensuring that the wide range of legal and operational challenges are considered as part of the planning.
The relationship between the general counsel and the supply chain management function is integral to the success and resilience of a company’s supply chain operations. By adopting a proactive, collaborative, and strategic approach, the general counsel can enhance this partnership, contributing to legal compliance, risk management, and overall operational efficiency.
Author: Sterling Miller
