The evolving legal response to supply chain management concerns.

GREGORY M. CHABON Womble Carlyle Sandridge & Rice, PLLC

Main points
Businesses have recognized the value of supply chain efficiency, but the of law firms doesnt traditional Businesses structure have recognized the value necessarily this new of supply mesh chain with efficiency, but way the of traditional structure of law firms doesnt doing business. necessarily meshview with this new way of Lawyers must their work as a doing business. piece of the whole, not as an isolated function. Lawyers must view their work a Furthermore, they asmust piece of the whole, not as an isolated gauge how their work will impact their function. Furthermore, they must clients overall operation. gauge how their work will impact their Supply chain operation. management counsel clients overall isnt new law its a new counsel approach Supply chain management to well-established law. isnt new law its a new approach Legal counsel well-versed in supply to well-established law. chain Legal management counsel well-versed in supply concepts may help chain management concepts may help businesses with strategic alliances, businesses with strategic alliances, intellectual property, global logistics intellectual property, global logistics and contract management issues. and contract management issues. Above all, building relationships is vital Above all, building relationships is vital in todays global economy, it is more in todays global economy, it is more important than contracts. contracts. Lawyers Lawyers important than must realize this reality and become must realize this reality and become facilitators in these these sorts sortsofof business facilitators in business partnerships. partnerships.

Main points

clients for whom supply chain management is a key profitability component. Traditionally, lawyers in large corporate law firms have been grouped according to the type of law they practice, not the type of work performed by the client. For example, if a client needs legal counsel on a board of directors issue, they consult with their firms corporate lawyers. If their transportation department needs to negotiate a contract with a vendor, they consult with transportation lawyers. And if the company has a regulatory compliance question, they consult with lawyers specializing in regulatory law. But for businesses, the cycle of receiving, producing and distributing goods is a single, organic process, not a series of unconnected steps all the moving pieces work in harmony. Too often, the lawyers are viewed as the final gatekeeper to be passed before action can be taken. In fact, lawyers are largely trained to view items in discrete elements, and having a document tossed over the transom for review at the 11th hour is all too commonplace. With our headquarters in the Piedmont Triad of North Carolina (home to many logistics companies, a new Federal Express hub, and outstanding rail, highway, and port infrastructure), it was a natural fit for our firm to focus on ways to better assist our clients in the area of supply chain management. We created a supply

chain management initiative whose team members cut across traditional practice groups based on what our clients told us were the key elements of their supply chains. We realized that we couldnt meet all of these needs by ourselves, so we partnered with Dr Rob Hanfield, director of N.C. State Universitys Supply Chain Resource Consortium, and one of the nations leading experts on supply chain management, as a consultant on these issues.

Changing business business climate climate means means Changing changing legal needs changing legal needs
Changes in the business climate are reflected in the coordinated, integrated approach to supply chain management that businesses have adopted in recent years. As a business lawyer and former engineer, I recognized the increased focus on supply chain management and the need to integrate legal analysis as one part of the process. It was also apparent that if lawyers were to be effective and add value, they had to understand how any individual contract, analysis, regulation, and so on affects, and is affected by, the companys overall supply chain. A lawyer sitting in his or her office and waiting until the process is largely complete before offering an opinion is not advancing the goal of optimal supply chain management. Supply chains are far more complex than they were 20 years ago. Much of

The value of efficient supply chains is by now well-accepted in the business world. The mantra that companies now compete supply chain versus supply chain is all but axiomatic in business and management literature. But law firms, by and large, have been slow to reflect this trend and catch up with their clients and, more importantly, adjust their legal services model to better integrate with, and serve as a value-added partner to, their

The evolving legal response to supply chain management concerns.

GREGORY M. CHABON

this complexity has crept in over time, so that a particular company may no longer have a clear understanding of where the pressure points in its supply chain are, and what risk mitigation should be implemented to ensure the supply chain can withstand disruptions. One example of taking an integrated approach to supply chain management is our work with a client whose supply chain grew substantially in the last decade. This growth included the addition of multiple domestic and international locations, the creation of a logistics subsidiary, and expansion of product lines involving additional and more exotic components. This company has a long and excellent history of operations, but over the past few years its understanding and management of its supply chain has not kept pace. Our approach, based on our meeting with the companys general counsel, was to meet with the senior management team from across the company. Our team comprised a lawyer versed in overall supply chain integration, contract management and corporate structure; a lawyer specializing in import/export regulations and duties/tariffs; and a lawyer specializing in freight and transportation issues. After gaining an understanding of the companys issues, we presented it with several initiatives, including supply chain mapping which aids in the identification opportunities for risk management

and tax efficiency; a contract management / standardization module; and an import/export compliance module. This integrated set of tools, involving legal and non-legal expertise, is a good example of how outside counsel is adapting to assist companies facing increasingly complex supply chain management issues. The general counsels willingness to work with outside counsel shows how both can effectively collaborate to achieve better results than has been the case with stereotypical relationships, such as sending the work to outside counsel with little interface.

lawyers and the client take some time to review the supply chain and understand important criteria about the company and its supply chain (for example, is the key issue speed, redundancy, cost or some other factor?). The lawyer needs to be able to see the whole picture. Working with Dr. Handfield and our clients, we have identified key areas where lawyers can have a substantial impact on supply chain management issues: Strategic alliances Partnering with another business, whether international or domestic, carries a certain amount of risk. Companies must determine the scope of such partnerships; negotiate terms such as oversight, payments and obligations; craft exit strategies; and manage tax liabilities. Intellectual property More than ever, guarding intellectual property across the supply chain is a prime concern for companies. They must be able to share sensitive data along the supply line while still maintaining an adequate level of protection. A company needs a proactive plan to protect its patents, copyrights, trade secrets and other intellectual property. Global logistics Doing business in different countries means dealing with the cultural and legal differences. Increased security measures in the wake

Added value of legal counsel Added value of legal counsel

How can a law firm assist a companys supply chain management efforts? With few exceptions, the law involved supply chain management issues is not new it is the law of commercial transactions, shipping, and duty/tariffs. The new component is understanding the supply chain and how individual aspects of it affect other parts of the chain that means not viewing any issue in a isolation. Fully serving clients means taking a fresh, coordinated approach to these well-established legal practices. A good supply chain management legal team should include lawyers with expertise in commercial contracts and transactions, intellectual property, antitrust, trade regulation and international law. Of critical importance is that both the

The evolving legal response to supply chain management concerns.

GREGORY M. CHABON

of 9/11 have put even more pressure on supply chains. A law firm should be able to assist a company to navigate these waters. Contract management Successful supply chain management is grounded in strong contractual relationships, from raw materials purchases to enduser sales. Other supply chain-related legal services include business continuity, risk assessment, transportation concerns, outsourcing of legal services, information systems issues, environmental challenges and industry-specific regulation, such as the guidelines governing the pharmaceutical and banking industries.

market-place. Contracts can be difficult to enforce in some jurisdictions, meaning a companys best defense against unforeseen problems is a solid relationship with its business partners. But building those relationships internationally often requires extra work, given the cultural differences and language barriers involved. Lawyers are often viewed by business leaders as speed bumps on the road to progress. We must change that perception by adjusting our approach to become valueadded counsel. That means working with our clients from the outset as true partners, not as occasional consultants. Our goal is to be our clients trusted advisor one who understands the clients goals, challenges, and processes and can add value up front, rather than being a gatekeeper. Meeting the legal needs in supply chain management is an evolving process. The first, most important, step is simply understanding that every step in a companys the supply chain directly impacts the entire process. So our approach must respect that reality and our goals should be aligned with those of our clients to keep the supply chain moving along efficiently and effectively.

Gregory M. Chabon, Co-Chair, Supply Chain Management Team, Member, Womble Carlyle Sandridge & Rice, PLLC, GChabon@ wcsr.com. Greg practices in the firms Greensboro, N.C. office. He is a frequent speaker on issues pertaining to supply chain management and the law.

Value of of relationships relationships Value

Perhaps the most important role a law firm can play in the supply chain management process is in helping companies to build relationships with their business partners. Theres a saying in contract law that, The process of negotiating a contract is more important than the contract itself. A well - negotiated contract has limited value if the negotiation process has alienated the parties, or has placed all the risk on one party. Relationship-building is particularly important in todays increasingly global

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