Skip to 0 minutes and 9 secondsThe traditional model of supply chain contracting has been quite linear in its approach. So it tends to be customer, retailer, manufacturer, which may be the OEM, tier 1, tier 2, tier 3. Which drives a very particular type of behaviour. So everyone in that supply chain is really looking at what's in their box and what they're responsible for, rather than looking at the bigger picture and saying, actually what do we want to really achieve for the end user and the consumer of the particular product. This model has changed over time, and that's been for a number of reasons. So it's changing to a more behavioural approach of contracting.

Skip to 0 minutes and 44 secondsAnd by that I mean looking at what the end objectives are for the manufacturer. To say how can it achieve those, and how can it bring the supply chain with it so that actually everyone is working towards the greater good? The drivers for that change have been things such as technology, which has really improved information flow among the supply chain. Things like connectivity, which just means that people are looking at things in a slightly different way. And perhaps most importantly, a change in demand from the consumer. Some of the end users have been once bitten, twice shy. So maybe their supply chain has let them down in the past. And they're saying, I can't afford for that to happen again.

Skip to 1 minute and 23 secondsSo actually they want to make sure they've got more control and visibility and transparency over what's coming down the track. And try and engender culture whereby people are more collaborative. So if there's an issue, they tell them early on and there's a more interventionist approach, as opposed to a stick at the end that beats up the relevant tier supplier that's failed on that occasion. So it's fair to say there are some things that are inhibiting us making that change to a truly behavioural model. Things such as really the mindset and the culture of organisations. So organisations all have their own board that they have to say, this is a risk based approach we're moving towards.

Skip to 2 minutes and 0 secondsAnd the board is looking for certain things to be within contracts, such as the liability caps, etc. So there's a desire there to not move away from that because that's working at the moment. So why change too quickly, and why expose yourselves to the risks of that? So it's risks of not changing, and the risk of failure if we do change the way we're doing business at the moment. And that mindset really has to change to enable us to embrace a new way of working and really be market leaders in the way we're driving change forward.

Skip to 2 minutes and 38 secondschain of people that are supplying product up the chain. It has to be how the business gets everything it needs in order to meet the demand from its customer. And that will be the raw materials, but it will also be all the ancillaries to that; power, paper. And you can't ignore all those things. The business needs all that to feed off, to be able to survive, and to be able to deliver its end product to customers. Supply chain management, in my view, is looking at the holistic picture. And working out how you can make that the most efficient and the most cost effective process, in order to deliver what you need to deliver to the end customer.

Skip to 3 minutes and 16 secondsAnd the end customer has to be at the heart of that process. So the information sharing, the management information that's collated, all needs to centre around what is our overarching objective to achieve growth and profit as a business.

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

Tiers in a Supply Chain/ Image source: Derek van Vliet https://flic.kr/p/6py7VC

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)

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This video is from the free online course:

Supply Chains in Practice: How Things Get to You

The University of Warwick