Due Diligence
In her article “Due diligence,” Catherine illustrates how companies have shifted their control over supply chains to independent suppliers. She argues that this approach has enabled companies to not only cut on their operational cost, but also improve their quality, code of ethics and contractual situations. The author illustrates how in the past most companies valued suppliers and considered them as part of their assets rather than risks. During this time, companies could easily shift their suppliers in case of dissatisfaction.
However, with time, suppliers embarked on specialization in their field of operation. In this regard, the switching of suppliers became hard and strenuous to companies unlike in the past. The challenge of switching becomes more grueling when the contracted supplier offers a particular company with service rather than goods. Thus, the affected company’s operations will become handicapped due to the difficulty in acquiring the spare capacity required to keep it operational in times of disruption. The author uses information technology (IT) to illustrate how the current companies subcontract from a solitary supplier.
However, in my opinion the author should have used more examples to correlate on the effects of disruption of the supplier and management. Catherine suggests that upon an IT supplier’s accsation of an intellectual property breach, the court bars the supplier from accessing its core piece of IP. With such court acts, the companies relying on the affected IT firm will incur business losses resulting from the firm’s operations disruption. Among the most controversial issues facing IT suppliers, are data privacy, IP violations, and bribery. According to the author, most companies are unable to detect such flaws and the only way to ascertain their effects is by conducting factory inspection and checking on the company’s litigation records globally.The author notes that bribery is a major misdemeanor in the supply chain.
She points out that companies are likely to use the suppliers to perpetuate such transgressions rather than using their own personnel. I think that the suppliers should be more vigilant to avoid bribery and illegal favors from vendors. Another major challenge facing the finance industry is guilt by association. The author demonstrates how the suppliers’ violation could equally lead to the customers’ breach of contract. In her article, Catherine demonstrates that inadequate recourse against suppliers is a major loss to consumers. Using an example of logistics companies that outsource IT from other corporations, she successfully demonstrates how the failure in IT systems could lead to added cost and losses to the logistics companiies.
Consequently, the IT suppliers will be accountable for all the direct losses disregarding the consequential losses. In my opinion, such outsourcing companies should encompass affiliate companies for backup in cases of system failure. The author notes that clauses can be contentious in times of force majeure. This is usually the case when companies do not fully comprehend their contract’s details. The author states that with a define majeure the suppliers insurance cover is supposed to compensate for the losses incurred in a specific client company.To defy the challenges that distract the management from appropriate functioning, the author provides the management with the “do’s” and “don’ts” of due diligence.
She recommends companies to understand their supplying company’s operations through site visits, assessing their financial records, checking on their past violations, interview the supplier’s staff, check on the supplier’s relations, and review their insurance. However, during such practices, the company should deny all boilerplate contracts and avoid handing over its intellectual possessions before verifying its safeguarding policies. Lastly, Catherine advices companies to avoid the signing of long-term contracts with up-and-coming suppliers. Rather, they should opt for short-termed extendable contracts.
