Safety Stock podcast starring Dan and Will

Earth Wind & Fire: Force Majeure

What happens when an unforeseen event takes place and impacts your supply chain? Do you know what force majeure is? We discuss what can happen and how manufacturers and brands can navigate this.

Will:
All right everybody, we are recording this on September 21st. So let Dan and I be the first to tell you

Dan:
It’s Earth, wind, and Fire Day.

Will:
Hey,

Dan:
Get excited.

Will:
Ah, you know, Dan, but the point that we’re making with Earth, Wind and Fire is it’s hurricane season,

Dan:
Just Mother Earth,

Will:
Mother earth in general there things are unpredictable and how is that related to supply chain? Well, in your supply chain agreements, typically when you are working with the supplier, there is a section called Force Majo, or if you’re French, and that is a contract stipulations that effectively says that the supplier is free from obligations. If there’s an act of God, act of God being a fire, a earthquake, hurricane war, Covid war, something that is outside of their control. And Dan, it’s tough enough when you’re a brand and you have challenges getting goods from a supplier just in general, like, you know, say it’s a struggle to get it. Obviously if there’s a pandemic, they can’t produce goods. Or if there’s a hurricane, if there’s an ice storm in Texas that freezes petroleum produced products, you know, for a couple of weeks

Dan:
The Amazon had the tornado come through their plan a few months ago, right?

Will:
All of these situations there was force situations where it was effective with the contract to where the suppliers are the ones that enact and say, Hey, we cannot deliver on these obligations because of hurricane, flood war, What have you if you’re a brand and what do you do?

Dan:
Well, I mean, it’s one of those things where as you’ve, you know, you, you let off with like what a force mature is. And I mean there are things that are out of your control. So it’s not like a brand has control over like these events that could take place. Now if you are in a hurricane primed area, that’s something that you may know on a, on a risk standpoint, it may impact you a couple days here and there, but for the most part, I never would think about those things. Now, like if you’re in a war zone country like Russia, Ukraine, right now, you probably know the risks of probably entering there today, maybe not. I don’t know if peop months ago we’re not gonna debate that, but like, you know, the risks of where you’re entering doing business with, or you should, you should have an idea of like where everything’s located, but it shouldn’t make a huge difference in your day to day practices. I would say cuz it’s the rarity of them. I mean it’s not like it’s common.

Will:
Yeah, I would say it depends. So to your point, you know, certain occurrences are rare. I think though, if you are for a good example, if you have a manufacturer that is in Florida and you are single source with that manufacturer in Florida and you know, around mid, mid-August through October hurricane season and if there is an incident where their factory goes down or can’t produce or even damaged,

Dan:
Yep.

Will:
We know it happens fairly regularly, you know, each year. And so there’s a chance that it happens. So it’s something that you have to evaluate. Similarly, if you have a facility that is in the Midwest and it’s susceptible to, you know, tornadoes similar, you know, it’s rare, but there’s a

Dan:
Chance even, even today, well we’ll use Covid I example both on the, on the US side where it triggered, but then they became essential workers. So like there was that government I guess remedy in a sense where they could operate their plan unforeseen event. But now in China it’s still zero covid policy. Now, I don’t know Chinese law when it comes to force mature, but that’s an unforeseen event as well where the brand can’t really do anything. The supplier can’t produce if the factory’s close because of a mandate from the government. That’s an example of where, where force majority could be triggered as well.

Will:
Right. And I think where, you know, as a brand why we bring up these scenarios is you wanna evaluate, you know, what your supply situation is, you know, really monthly, you know, every three, six months. We’ve talked about having backup plans before, but this is the type of situation where, you know, it’s unrelated to supplier performance, but it’s really about if something happens, what can you do to get your goods? And we’ve talked about that backup plan being even if you’re not with someone right now, what would you do if you had to make a fast switch and do you have those people identified? Can they produce the same good or would it be something slightly different? Have you brought it up with your team? Because the worst thing that can happen is that you have something come up, you aren’t prepared and then all of a sudden you’re having to make these decisions on the fly when it’s a stressful situation to begin with. We know that’s typically when good decisions are rare.

Dan:
It’s also like this impacts the manufacturing side. There could be situations where hurricane comes through and your goods are already are produced so you’re not, and they’re just sitting at the factory so you’re not protected by that forced majority clause there because you’re not running anymore. But that’s an instance where you may wanna have insurance just with your finished goods and the locations they’re at just to protect yourself from those unforeseen events as well. That can happen in the in the in-transit world. That would be classified as, so that’s something else to safeguard yourself to in both events if you’re manufacturing and or in transit of those components or finished goods.

Will:
Yeah, you’re right. And the other thing is, is that you can think about is when we talk about relationships with suppliers, when they finally get back on where are you in line in terms of, well, whose goods they’re going to produce, are they going to start up directly in Q or is there that big brand that’s ahead of you for some reason that you know, they’re gonna be like, Hey, we need our stuff more. We we’re the one who pays more of your bills. Is the supplier gonna be the one that gets them, they get to get you. And if they are, how do you base your relationship off that? And so this all goes into the planning piece of effectively saying if there is an event outside of everybody’s control, you know, how do you predict it going? And then what are you doing to ultimately protect the goods that you need to produce for your brand. Dan, I think what we can do is, is two things. One, if there is an incident or if there’s been an instance where you know somebody’s had a force juror situation come up, obviously let us know, we want to hear about it, they can reach out to us at hello@anvyl.com. That’s A-N-V-Y-L.com. The other cool thing is that Anvyl has you know, the ability to measure supplier performance and so specifically in this instance, you can actually categorize where there’s been instances of any type of change and then you can reference it on a historical data set as you continue on using Anvyl. So if you have a hurricane, hey mark it on down, this is when it happened. It wasn’t related to performance in terms of things actually being on time for something a supplier could control.

Dan:
Yeah, I just read something kind of interesting. A case back in 2008, federal court in Georgia held that an unprecedented president economic downturn, which in debate if we’re heading towards that, was not an act of God and did not render contract performance impossible. So not force major. So people did want to use the current economic landscape as a way out. Fortunately, doesn’t look like it’s

Will:
Possible, you know, let us know what you think right out to us at hello@anvyl.com and we look forward to talking here.