A Guide to Supply Chain and Supplier Relationships

This information for businesses trading cross-border between Ireland and Northern Ireland will provide tips for developing successful supply chain relationships and answer questions about what you need to consider when changing suppliers.

Contents

Introduction
What are the key steps in a supply chain?
How do I manage my supply chain relationships?
What's the best way to manage supplier contracts?
What do I need to do if I'm thinking about changing a supplier?

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Introduction

A supply chain consists of organisations, individuals, and resources that convert raw materials into a finished product that is distributed to an end consumer. Having an efficient supply chain is crucial for cross-border businesses to ensure there is no disruption to the manufacture and distribution of goods and services. 

What are the key steps in a supply chain?

There are a number of key steps for businesses to consider within a supply chain:

• Sourcing raw materials.

• Manufacturing/product creation.

• Order fulfilment/sales.

• Communication with the end consumer.

• Logistics/product delivery.

• Customer support and return services.

How do I manage my supply chain relationships?

It’s important for businesses trading cross-border between Ireland and Northern Ireland to invest time and develop good working relationships with their suppliers, as this could present benefits for the company such as cost savings, improved quality of product and faster delivery times.

Contract agreements: It’s good practice to review your contracts regularly to ensure the agreement is still relevant for your business as this will allow you to discuss any areas with your suppliers or make amendments when possible. You must also ensure you are aware of your requirements within the contract, particularly regarding payment/invoicing so that you act accordingly and don’t delay your supplier receiving payment as this could damage your relationship going forward. If you expect you might miss a deadline or can’t pay on time, let your suppliers know, ideally with as much notice as possible.

Communication: Keeping regular communication channels open with your suppliers and being transparent is key to building a strong working relationship and preventing any misunderstandings and potential disruption to your business operations. It’s important to invest time and keep connected with your suppliers by arranging face-to-face meetings if possible and understanding their business, as this will give you a better sense of any new products or developments that could benefit your business.

Challenges and concerns: It’s important to be open and transparent with suppliers on any concerns you may have, so that you can both discuss these issues and resolve them together. If your supplier addresses any concerns they are experiencing with your business, listen to them and again, try and resolve these challenges together. It’s important to create a relationship where both good and bad news can be shared openly as this will only strengthen the relationship. 

What's the best way to manage supplier contracts?

Having a clear and accurate contract with your supplier will enable you to understand and measure your supplier’s performance accordingly. The following information will help you make sure your contracts are reviewed and amended to best suit your business needs.

Existing Contracts: Cross-border businesses should consider reviewing, and where appropriate, amending key contracts so that they are fully understood and align with your business. Steps you might take include:

• Re-examine the terms and conditions of contracts to ensure you are protected if your business is no longer commercially viable.
• Understand and choose the appropriate Incoterm (which defines the responsibility for delivery, risk, customs, insurance, and VAT).
• Update contracts to allow for non-EU or UK jurisdiction.
• Renegotiate existing contracts to lock in current prices and to include liability provisions for any extra costs that might arise.

New contracts: When entering a new contract with a supplier, be sure to plan ahead by building in enough flexibility to accommodate uncertainty. Some suggested actions include:

• Avoid long-term contracts to allow a contract to end if needs be.
• It’s extremely important to agree on the appropriate Incoterm with your supplier and incorporate it into all new contracts as this will clearly highlight key responsibilities for both parties.
• Customs declarations, tariffs and licenses, and import VAT may lead to additional costs and impose an additional administrative burden, so it’s important to understand the agreed Incoterm and which party is responsible for certain customs elements and the associated costs.
• Include automatic currency-linked price adjustment in the event of large currency movement.
• Define what laws will govern contracts in the future.
• Consider adding break or price adjustment clauses when negotiating new contracts.

Should you wish to secure a new contract there is an internationally recognised approach to help you select the right supplier. The 10C model (by Dr. Ray Carter) consists of 10 core criteria that provide a framework and thought process to enable this critical based decision to be made more effectively.

What do I need to do if I'm thinking about changing a supplier?

Brexit forced many SMEs across Ireland and Northern Ireland to review their supply chain due to introduced customs requirements when trading with Great Britain. Many businesses did not have the capacity or skills to undertake this additional administration, resulting in more communication with current suppliers and agreeing/amending Incoterms to ensure suppliers could look after any new customs requirements and how to determine the best way forward.

The below FAQs provide useful guidance if you are changing suppliers and certain impacts to be aware of or sourcing a new supplier and key points you should consider.

1. How do I map my supply chain?

The first step when considering changing a supplier is the impact it will have on your supply chain so it’s important to map out and understand your current supply chain. It is essential that businesses identify:

• Where am I getting my goods from?
• What route do the goods take during transportation to my premises?
• Am I using the goods to manufacture something else, or will I simply be selling them?
• Who are alternative suppliers that I can change to and won’t disrupt my supply chain?

Once you have a clear understanding of your current supply chain, you will be able to evaluate the importance of the supplier you are thinking of changing from and the impact this will have on your supply chain and ultimately, your business.

2. Is there scope for my current supplier to help with additional administration?

If Brexit has had an adverse administrative or financial impact on a particular trade flow, it may be worth engaging with your suppliers to determine if a collaborative approach could be undertaken in order to overcome any new obstacles to frictionless trade so that the commercial relationship may continue. Any agreements made in terms of setting out the roles and responsibilities of each party can be formalised through the use of Incoterms. By choosing a different Incoterm a business may be able to significantly reduce the level of administration that they will face.

If a business were to agree a Delivered Duty Paid or DDP incoterm with suppliers, then they would be able to pass all responsibility for customs declarations back onto their suppliers allowing them to continue to use existing suppliers with a minimal increase in administration. Even if a business is unable to agree a DDP incoterm it is important that they utilise Incoterms to their full effect and ensure that suppliers provide them with all required information to help make the process of customs declarations less time consuming. Delivered at Place (DAP) also requires the seller to help support the buyer by providing information required to help ensure Import customs clearance. Read our comprehensive article about Incoterms for more information.

3. What is strategic sourcing?

Strategic sourcing is a process that creates efficiencies across the purchasing function within a business by minimising risks when selecting suppliers and also by increasing transparency in terms of pricing and forecasting. These efficiencies involve the increased collection and analysis of data, increased use of business networks to access suppliers, automating processes and embedding processes of continual review and process optimisation.

4. Will there be direct impacts if I change supplier?

The impact on your business operations will be dependent on whether or not a new supplier is being sought for a single material or component part, or if an entirely restructured supply chain is being devised. However, before committing to changing suppliers on any level, it is important to undertake a cost-benefit analysis of all the benefits and drawbacks of changing supplier. This includes looking at the level of administration involved, costs and the time it will take to receive goods from suppliers.

For instance, whilst there may be no customs requirements bringing goods direct from mainland Europe to Northern Ireland/Ireland it may take significantly longer than importing goods from GB. This is particularly important if your business operates a 'Just-in-Time' model or is involved in an industry (such as food) where product life spans are shorter and therefore maintaining quality and freshness is paramount.

5. What else should I consider if I'm thinking about changing suppliers?

Trade routes are an important aspect in determining the most appropriate supplier of a product or component part. However, there are other factors that should have a significant influence on this decision, including:

• Ensuring that the product being imported meets your needs and complies with all of the necessary standard's frameworks. It is important that businesses do not sacrifice quality. Prior to agreement with any new supplier, ensure that the alternative supplier’s products are of sufficient quality to replace those provided by your previous supplier.
• Ethical and environmental record of manufacturer/supplier.
• Capacity of suppliers to meet your bespoke needs, specifications and timeframes for delivery.

6. How can I ensure continuation of supply?

It is likely that it will take some time to identify and develop relationships with new suppliers. It is therefore important that appropriate arrangements are implemented in the interim to ensure that the supply of essential materials continues. This could mean:

• Developing an awareness of customs processes so that declarations may be completed, and compliance can be continued in the short term until a supply chain solution that requires less administration can be found; and/or
• Increasing the levels of stock held from current suppliers to ensure that production can continue as the new supplier relationships are developed.

it is important to ensure that there are contingency plans in place in the event of supply chain disruption, or in the instance whereby the initial terms of the commercial contact have not been met or honoured. This will help to ensure that your supply chain is flexible and resilient, which can in turn be a source of competitive advantage for your firm.

7. Do I need to agree a contract with my new suppliers?

If a decision has been made to change suppliers, it is of vital importance that a trading contract is drawn up. This should include a set out of the expectations of each party from the offset.

A well thought through initial contract could lay the foundation for a long term commercial relationship to be developed, and will also set out the responsibilities for transporting products as well as clearly defining liability for any unforeseen issues that may occur during the production, transport or delivery of the goods.

 

 

Article reviewed: April 2023