Daily Archives: June 8, 2009

Dick Locke on the Dangers of Protectionism (or is it Cluelessness?)

Editor’s Note: This is Dick Locke‘s second post as a regular contributor on Sourcing Innovation. (His previous guest posts are still archived.) Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book.

There was a letter in today’s New York Times from Thomas Gibson of the American Iron and Steel Institute that said, in part,

Steel imports are taking historically high market share while the domestic industry is producing at half its capacity. American mills are on hot idle waiting to produce quality steel for America’s needs. Let’s stop being apologists for foreign protectionists and put Americans back to work!

It would be nice if Mr. Gibson said why US industry is at half capacity. Is it Quality? Flexibility? Price? Overcapacity? I certainly don’t know. Maybe he doesn’t either. It must be….(cue the ‘Satan’ music from Saturday Night Live)… Protectionism!

I do know that if the Institute tries to force buyers of steel to use a more expensive or otherwise less desirable steel because it’s made in the USA, it puts users of steel at a competitive disadvantage to their foreign competitors. That hastens the departure of users of steel (for example, the auto industry) to other countries. This isn’t a zero sum game. Protecting a US manufacturer of a basic product hurts higher level industry and the ultimate consumers of that product.

Let’s not go down that path.

Dick Locke, Global Procurement Group.

Protecting Against New Supply Chain Threats with your Contracts

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CIO Magazine recently ran a great article on 8 contract tactics that protect against new threats in offshore outsourcing that is definitely worth a read. Given, to name a few,

  • the current economic conditions,
  • rising geographic instability, and
  • increased vendor instability,

now, more than ever, you need to review existing contracting approaches and adopt new strategies for these emerging threats. To this end, CIO outlined eight tips to help you negotiate your next contract or re-negotiate your renewal that every buyer and contract specialist should take to heart.

  1. Extend force majeure to encompass new threats.
    Insure that such clauses do not forgive a lack of responsible precaution as well as excluding natural disasters beyond either party’s control.
  2. Extend criteria for eligibility for termination for cause.
    Include termination provisions that provide an early rapid response to changing supplier conditions that present potential disruptions, linked to visible triggers such as a significant reduction in a supplier’s credit rating, admission of fraud, or misleading financial statements.
  3. Extend change of ownership provisions to include break-ups.
    If a key division is broken off and sold, that could be more damaging to your service level than a change in ownership.
  4. Establish clear ownership of assets and documentation.
    Don’t overlook the soft intellectual property assets such as software, documentation, and proprietary processes.
  5. Add clauses and terms to address emergent concerns.
    Transition-out requirements, audit provisions, and termination costs are often overlooked but becoming increasingly important.
  6. Take advantage of lessons learned.
    Don’t overlook necessary audit provisions.
  7. Seek concessions in re-negotiations.
    It’s a weak economy. Don’t forget that.
  8. Secure adequate legal advice.
    Many of the new scenarios and contingencies in contracting bring additional legal risk and complexity and will likely require consultation with a legal advisor.