Enabling the supply chain: A legal perspective

Look beyond your own box, and your own responsibility. Look at the bigger picture and what you want to achieve for the end user.

In the video Claire Francis, a Partner at Pinsent Masons, specialising in commercial law is encouraging companies to take a more holistic view of the supply chain. To look beyond the classic Customer – Retailer – Original Equipment Manufacturer – Tier 1 supplier – Tier 2 supplier characterised by its boundaries and to consider what the supply chain wants to deliver for the end user.

This shift is leading to new ways of contracting, in particular to more behavioural or collaborative contracting. They provide a way for companies involved in a project to work together – to proactively and jointly manage project risks, in order to achieve the desired deliverable for the end user. They encourage innovation and continuous improvement during the project as risk and reward are shared.

The need to work in differently is being driven by changing consumer demands. The more turbulent nature of demand means that more ways collaborative working across the supply chain can help to mitigate risk. It is enabled by technological developments that enable connectivity providing greater visibility and transparency. The biggest barrier to change is mindset and culture, where the risk of failure through collaborative working needs to considered against the risk of not changing.

Tiers in a Supply Chain

Both Claire (above) and Sir Michael (from Step 1.4) have mentioned tiers in a supply chain. The terms are most commonly used to describe manufacturer and supplier relationships in the automotive, aerospace and computer industries. This is because they manufacture complex products often with millions of parts with thousands of suppliers.

An original equipment manufacturer (OEM) can refer to companies in their supply chain as tier one and tier two suppliers. The terms indicate the commercial distance in the relationship between the OEM and supplier.

• OEM – produces final product for consumer market place
• Tier 1 – deal directly with OEM to provide sub-assemblies and/or components
• Tier 2 – are suppliers to Tier 1
• Tier 3 – are suppliers to Tier 2 (it gets difficult to distinguish beyond this level)