Top 10 considerations in pre-empting aerospace and aviation supply chain disputes

5 minute read
05 September 2022

Supply chains in the Aerospace and Aviation Sectors can be complex, and severe operational and financial consequences can follow in the event of supply chain disruption. Taking early action to review your supplier relationships and identify any potential areas of risk is crucial to ensuring your operations continue to run smoothly.

Carrying out a rigorous audit of your supply chain is an important first step. Doing so will enable you to understand all possible weaknesses and focus on making your business more resilient to potential areas of dispute - ultimately, reducing the significant time, cost and liability implications that can follow in the event of a disruption.

To help businesses take a pre-emptive approach, we've put together our top 10 key factors to consider in identifying and managing potential supply chain risks:

  1. Complete a risk management assessment of your supply chain. There are measures you can take to reduce your business' likely exposure to supply chain disruption. Key clauses in supply contracts should be reviewed regularly and stress tested for their robustness, enabling you to take steps to help maintain smooth business operations and mitigate litigation risk.
  2. Vary existing contracts. If fixed price and/or low margin contracts are no longer financially viable, try to re-negotiate or vary onerous contractual provisions. Make sure any changes are documented. If variation is not possible, consider termination or assignment.
  3. Manage risks in advance wherever possible. Think about whether you can obtain supplies from multiple sources, or from more local providers. Multiple sources can mean your link in the chain need only slow down if there is disruption rather than cease entirely. Local providers may be more expensive, but having supplies with a shorter distance to travel could help to minimise disruption.
  4. Ensure visibility in your supply chain. Keep an eye on the financial status of your suppliers – you may be able to see when problems are on the horizon. If supplies are going to be delayed, make sure you know about it in advance, so that any potential impact can be considered in advance. Longstop dates/other dates can be negotiated and expectations managed accordingly.
  5. Preserve your supply chain. What happens if you know there is going to be a disruption in the supply chain? Can you/ should you compel performance if you become aware that supply to you is going to stop?
  6. Have a contingency plan in place. What if there is disruption in the supply chain? Make sure you have a plan in place to try and reduce the impact. Check in advance whether your contracts will allow you to take the remedial steps you may need to take?
  7. Inform key team members of risk factors/ monitor risks. Train your team! Make sure everyone is aware of the risk factors in your supply chain – not just those who are in management roles. Ensure all team members know how to escalate their concerns. Make sure all risk factors are closely monitored and that an appropriate contingency plan is ready.
  8. Have all contractual documents and all contact information available. Ensure all contractual documentation is securely stored and can be accessed easily – and know who you will need to speak to at businesses further down or further up the chain. Time could be of the essence if a supply chain issue arises or there is a chance that an issue could arise.
  9. Keep communicating. Communication in the supply chain is key. If lines of communication are open and they remain good, then there is a chance that disputes can be avoided – even if the supply chain is disrupted. Just keep talking!
  10. Engage in a formal dispute resolution process. If everything else fails, formal dispute resolution will be your next step. Check your contracts for dispute resolution clauses. Are there escalation clauses in place? If so, follow them and make sure all notice provisions are adhered to. If a dispute with a supplier or customer becomes inevitable, then always seek advice.

To explore any of the points in this summary in more detail, or if you require any assistance in working through a potential supply chain issue or dispute, please contact Tom Cox.

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