Nicole Livesey, manufacturing industry contract expert at Pinsent Masons, explores how increased collaboration in manufacturing is encouraging new contract models.
New contract models have emerged to underpin collaborative partnerships in manufacturing and reflect major changes in the sector.
Traditional linear contracts, individually linking participants in the supply chain, are being replaced by more flexible multi-party and behavioural contracts to account for new cooperative commercial relationships.
New digital technologies; increasing connectivity; the drive for innovation; a greater focus on services, and changes in customer demands are behind the push towards more collaborative models.
Manufacturers and other businesses moving into the sector need to consider how the changes affect issues such as their ownership, management and licensing of intellectual property (IP), as well as their exposure to product liability risk.
Ultimately, good collaboration is built on strong relationships and trust. Those themes were reinforced at a recent future of manufacturing discussion which was hosted by Pinsent Masons, involving representatives from Cisco; Fujitsu; Warwick Manufacturing Group; WSP Parsons Brinckerhoff, and others.
Collaboration in action
Businesses can benefit in many ways from collaborating with others, from expanding networks and insights, to accessing new talent pools, techniques, processes and funding, potentially increased productivity, faster growth and increased global reach.
As a concept collaboration is not new, and there are countless successful joint R&D projects involving universities and companies over the years.
What has changed is that collaboration has become a necessity for incumbents battling to retain market share in the face of competition from digital disruptors.
Digital technology has helped to blur previously well-defined lines between different markets and unlikely partnerships have emerged between companies which would never previously have worked together.
Recently UK-based e-commerce tech provider, Powa Technologies announced a strategic alliance with payments processor UnionPay Network Payments in China which the companies said will enhance the in-store, mobile payment and mobile commerce technology available to retailers in China.
New commercial tie-ups have also been forged in the manufacturing industry. IT supplier Fujitsu is one of the companies to embrace collaboration in manufacturing.
Fujitsu is a member of The Open Automotive Alliance, a group made up of car manufacturers and technology companies that “share a vision for making technology in the car safer, more seamless and more intuitive for everyone”.
In Sweden, Fujitsu was the exclusive partner for Volvo in two areas; Infrastructure Operations (IO) and Service Desk and Distributed Computing (SDDC).
In Japan, Fujitsu, a subsidiary that manufactures car audio, video, control and navigation systems, is working with Toyota on developing information services for connected cars and also helping Toyota to develop cyber security measures for their vehicles.
Working also with Microsoft and Intel, Fujitsu can control the management of connected car information, but ensure that intelligence can pass to and from connected cars and their systems, regardless of the car’s make or model, to eliminate information silos and instead provide integrated transport solutions that support better safety, transport routing and real time data use and decision making.
The new era of collaboration is increasingly being reflected in business contracts. Companies that would previously just send out standard form drafts and refuse to contract on any other basis are now being more flexible and are much more prepared to negotiate.
This approach requires businesses to think carefully about their intellectual property (IP). IP rights exist to encourage innovation, but for collaboration to be successful there is a demand for openness.
There is a balancing act and a question over how much information should be shared. This is a difficult balance to strike and can often lead to parties not committing fully to the venture and holding certain information back.
There are examples of parties being willing to commit to projects without any security over any IP produced. Defence contracts are one example.
In this instance, it is accepted practice that the contractor will not have any exclusivity over any IP as it will be shared across the government.
In addition to this, if the contractor is removed, any replacement party will also be entitled to exploit the IP for the performance of the contract. Due to the high value of the contracts, firms are still willing to participate.
The Catapult network, which the UK Government has developed to support research, development and innovation, enables organisations from the manufacturing sector to collaborate with the academic community under the express understanding that any IP created will be freely available and not subject to the usual protections.
Despite this, the initiative has been hugely successful and many have demonstrated a willingness to share IP.
Using existing resources for collaboration
Collaborative frameworks have been developed to help companies work together. The BS11000 collaborative business relationships tool is set to become an international standard in early 2016.
It provides an eight-stage framework aimed at supporting business to collaborate effectively to create value and to deliver mutual benefits.
Similarly The Lambert toolkit exists to assist R&D between business and universities whether on a one-to-one or multi party basis.
There are a number of template agreements to use in different situations, as well as a decision guide and further guidance and can help companies navigate complex IP issues that come with collaborating and sharing knowledge.
Relationships built on trust
Working with new partners across industries raises new issues in supply chains. Sharing knowledge with unfamiliar partners and protecting their IP rights without stifling progress is just one example. Relationships are also critical.
The UK Government-commissioned Dowling report published last summer, which focused on business and university research collaboration, provides a useful ranking of the most important factors and barriers to successful collaboration.
“Strong and trusting personal relationships” was the number one “key success factor for a successful collaboration” identified by stakeholders.
Changing customer demands can require suppliers to form consortia and collaborate with their competitors. Our panel for the future of manufacturing roundtable event said that in these situations there can often be an element of tension between the short term goals of each individual company and the over-arching interests of the consortium.
A shift to a more open approach and a focus on what can be gained rather than what can be lost from the relationship will help companies make a success out of collaborative initiatives.
As collaboration becomes more widespread a firm’s reputation as a trustworthy collaborator will become so commercially important that the risks of one party breaching the trust will be significantly mitigated.
We can expect contract models to evolve to reflect that development.