Contracting Excellence Journal

Articles, news and insights from IACCM staffers and over 40,000 Members.

Subscribe and never miss out. There's always something going on here!

Interactive supply chain systems and devices that constantly ‘listen’ - will the vast mountains of data they produce be the price we pay for new age automation? Spare a thought for legal, who may have to sift through it all if your contract gets into trouble.

Industry 4.0 will change everything

New-age automation and data exchange, cyber-physical systems, the Internet of things and cloud computing (known as Industry 4.01) will change everything about the way we do business. As our supply chain partners become completely integrated, with spontaneous system-to-system communications, different rules will apply.

Moving up the sophistication and automation curve will improve productivity in our factories, reduce costs and reduce manual errors. But it will also introduce complexity in communications and integration with machines via the internet.

The exchange of information and integration of machines will likely have left an audit or transaction trail. So when a dispute arises between supply chain links, mountains of new evidence from machine-to-machine transactions will have to be excavated and reviewed, driving up the cost of legal representation, as each party’s lawyers will have to do the same.Vast amounts of listening information from multiple inter-connected, interactive devices may well be subpoenaed as evidence.

Consider how your smart phone is connected to your email, the internet, your car and perhaps even your home. Now multiply that by the number of machines all around businesses. Within the next few years, it’s estimated that 50 billion machines will be connected to the internet.

How will the rules and clauses governing contracts have to change to accommodate this new way of integrating? What clauses must be put into contacts to protect suppliers and consumers?

Contracting must speak the language of machines

Now we will have to include contractual language that is meant for machine-to-machine relationships where humans are not always involved. For example, today it is common for supply chain partners to share forecasts via email, Electronic Data Interchange (EDI) or internet gateways. Soon, these integration points are more likely to be spontaneous and system-to-system communications.

Privacy and problem solving take on new meaning

Things like privacy, frequency, and problem-solving will take on new meaning. For example, a non-disclosure agreement will have to apply to digital security, and measures will have to be taken to ensure cyber-security and to prevent misuse of information.

Employees will need training not to compromise sensitive data, including by inadvertently responding to innocent-sounding requests by hackers.

Customer contracts can be expected to change in the same ways, with suppliers potentially liable for breaches in customer data, especially leaks that give rise to safety or security concerns.

Contracting partners must be ‘on the same page’

Contracting partners must be sure they are on the same page about the data they value and metrics they will measure. Big data allows parties to understand more about their quality, safety, and economic performance, but obviously each of these metrics can be measured different ways. The availability of more data amplifies the need for good human communication skills, and does not supplant it.

Digitization and access to more information can certainly resolve factual disagreements between contracting parties, and can eliminate the lengthy human fact-finding process that sometimes has taken place in the past. However, access to increasing amounts of information can also slow communications if the parties have not jointly determined in advance what information is truly valuable to them.

We know of several instances where supply chain customers have become frustrated when they asked their suppliers for what seemed to them like simple, straightforward information, but the response came back in the form of complex spreadsheets loaded with data that did not solve the problem.

Big data – a change for the better?

We have to make sure we are changing for the better, and using new Industry 4.0 opportunities to become more, rather than less, efficient. Big data can be overwhelming, and there will be a technological ‘adolescence’ while we determine what information is helpful, versus what information slows down our ability to make decisions and respond to our circumstances. Ultimately, big data cannot analyze itself, and there is no viable substitute for human judgment and analysis.

Our best advice is to pay attention to change and always be learning about new technologies. Get help from a consultant or attorney for new situations and new kinds of contracts. Most importantly, practice good communication with your suppliers and your customers. Pay attention to details, take note when issues and concerns are brought up. Work to resolve issues early before they become expensive legal battles in court.

Information is wonderful, but its collection cannot be allowed to become an end in and of itself.

END NOTE:

1      Industry 4 Wikipedia definition (https://en.wikipedia.org/wiki/Industry_4.0)

ABOUT THE AUTHORS

Rosemary Coates is President of Blue Silk Consulting, a Global Supply Chain consulting firm and the Executive Director of the Reshoring Institute. She is a best-selling author of four other books in addition to co-authoring Legal Blacksmith. She is also an Expert Witness for legal cases involving global supply chain matters. Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide.

Sarah Rathke is a partner at the international law firm of Squire Patton Boggs LLP, which has 44 legal offices in 21 countries. Along with Rosemary Coates, Sarah Rathke is the co-author of the 2016 business book, Legal Blacksmith: How to Avoid and Defend Supply Chain Disputes. Sarah has argued and tried cases on behalf of manufacturers in forums throughout the US. Her clients include foreign, domestic, and multi-national manufacturing entities across industries.

Don't miss our regular newletter featuring news, events and popular articles from IACCM Members and experts. Subscribe to the IACCM  Contracting Excellence Newsletter

Topics: technology, contracting excellence, contract management

Download our
Ten Pitfalls Report

Download the Pitfalls Report

See the September Edition of the Contracting Excellence Newsletter
September Edition of Contracting Excellence Newsletter

Recent Posts

IACCM Membership Types & Pricing

Take a look at the various membership types, or take a better look by becoming a FREE Trial Member

Membership Types & Pricing