The food industry supply chain has become increasingly globalized in recent years. Sourcing products globally can increase the breadth of product offerings, create new opportunities, lower prices, and bolster a company’s bottom line. Despite the many benefits, however, it is important to also recognize and mitigate the risks associated with doing business internationally. I recommend adopting a holistic approach that provides overlapping layers of risk mitigation.

The ability to obtain redress for grievances can be difficult when doing business internationally. Whereas, in the United States, we have a reliable judicial system and a legal framework that readily allows a party to obtain remedies for harm, pursuing redress from foreign suppliers can be prohibitively costly and complex. This is, in part, because the laws in other countries can be vastly different than those in the U.S. Likewise, treaties, customs and other legal idiosyncrasies can undermine a case in unexpected ways.

Ensuring that contracts adequately define the applicable laws and jurisdiction will be key to protecting your interests and ensuring contractual enforceability. Likewise, periodically reviewing contracts, agreements and other legal instruments that govern the terms of supplier relationships can help to ensure that the agreements are enforceable. In particular, pay attention to emerging risks.

Of course, staying out of court in the first place is always preferrable. Knowing and carefully overseeing your suppliers is an effective way of staying out of court. Conducting regular supplier verification audits is probably the best means to confirm that your suppliers are complying with food quality expectations and meeting food safety obligations.

Procuring insurance coverage against known risks, whether recalls, supply chain disruptions or some other risk, is also extremely important. In many cases, insurance coverage is all that stands between bankruptcy and survival in the event of a recall. Work with your broker to identify foreseeable risks and insure against them as a great first step toward minimizing risk. Another option is to demand that the foreign suppliers themselves obtain adequate insurance. Relying on a foreign insurance company can be risky, but it is a zero-cost measure that can fill important gaps.

So, how can you best protect your company from risks associated with doing business in foreign countries? Review your contracts, audit your suppliers, and obtain insurance coverage to protect against foreseeable risks. Though it is never possible to completely eliminate risk, taking common sense actions today can prevent a devastating loss tomorrow.

Food for thought on managing foreign supplier risk

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