For The Defense, July 2010 - DRI Today

T H I N K G L O B A L LYFive Tips for Preventing ProblemsSupply Chain Issues in the Global EraBy Christopher G. Campbell and Laura T. VogelSupply chains can be fragile. This is especially truein today’s global economy. In the past, the supply chainfor a mid-sized manufacturer might stretch from Michiganto Missouri. Today, a similarly sized U.S. manufacturer’ssupply chain could easily include companiesbased in China, Taiwan, Mexico, and India, among others.That additional complexity leads to additional risk.In one of the most well-known books on globalization,The World is Flat, Thomas Friedman describes withawe how the supply chain for a single Dell computerinvolves hundreds of component part suppliers basedin more than a dozen countries. A business consultantreads the passage with an appreciation of the efficienciescreated by outsourcing work to low cost providers.One of the authors of this column read that passage witha thought that regularly passes through the minds ofdefense counsel when asked to review a business or manufacturingproposal: What if something goes wrong?As we all know, in the years since 2005 when Friedmanfirst published The World is Flat, things have gonewrong from time to time. Not with Dell necessarily, butwith other manufacturers and other products, fromtoys, to drugs, to drywall. The purpose of this column isto briefly highlight and summarize one cautionary taleand to describe briefly five tips that manufacturers canemploy to prevent similar problems in the future. If youfind this helpful, then please attend DRI’s Annual Meetingin San Diego this October, where we will provide amore detailed presentation on these issues as part of theInternational Law Committee’s breakout session.A Cautionary TaleBefore diving into this example, we should preface ourremarks by stating that our information comes largelyfrom publicly available reports and that we are notapportioning blame or fault to any party. Perhaps thebest-known example of a supply chain problem withlong- lasting consequences for manufacturers occurredin 2007, when a U.S. toy manufacturer announced therecall of nearly half a million toy cars because a Chinesesupplier had allegedly painted the toys with leadpaint. The alleged culprit was a painting company basedin rural China that had entered into a subcontract withthe original Chinese supplier and had decided, unbeknownstto the U.S. manufacturer, to use lead paint onthe toys. As in the United States, China does not permitthe use of lead paint for children’s products, but theChinese authorities appear to enforce the standard lessrigorously than authorities in the United States. Almostimmediately after the initial recall, lead paint concernscaused other U.S. manufacturers to issue recalls for morethan a million toys, including toy trains, toy ovens, dolls,and others.As with most product recalls, litigation followed andwill continue into the foreseeable future. Legislationalso followed. Coming at the end of the George W. Bushadministration, the massive recall of Chinese- madetoys and other products led the president and Congressto pass the Consumer Product Safety Improvement Actof 2008, which mandates new and stricter standards forchildren’s and other products.Five TipsAs the example above illustrates, problems with a globalsupply chain can harm U.S. manufacturers, which areoften held accountable by the public. It is for that reasonthat we offer the following five tips.1. Know the RisksThis probably goes without saying, but we will say it anyway.Each industry is different, and each part of the globehas its own inherent risks. For instance, U.S. manufacturersthat rely on supply chain partners in certain parts ofIndia may be more vulnerable to political upheaval or terroristattacks than those manufactures who rely on supplychain partners in a different part of the world. Othercountries may have a reputation for cutting corners whenit comes to quality control. Whatever the industry andwhatever the part of the world, the key is to investigatewhich risks are most likely to affect your supply chainand then to develop a strategy to mitigate those risks.n Christopher G. Campbell is a partner in DLA Piper’s Atlanta, Georgia office, wherehe specializes in complex litigation, including product liability defense. Mr. Campbellalso regularly provides advice to international and domestic clients on a varietyof issues, including better ways to safeguard their international supply chains. 2. Impose Clear StandardsLaura T. Vogel is an associate at DLA Piper, also in its Atlanta office, who specializesin product liability defense. Both are members of DRI’s International Law Comticularlywhen dealing with foreign companies thatClarity is critical. Clear standards are important, parmittee,which Mr. Campbell also serves as publications chair. Think Globally, continued on page 90For The Defense n July 2010 n 85