ROLE OF COUNSEL IN SUPPORTING THE MANUFACTURING FUNCTION

August 20, 2012

My “role of counsel” series has been well received and this month I wanted to focus on contributions that you as counsel can make to support the manufacturing activities of your clients.

Manufacturing is an activity that requires a substantial investment of capital and time and failure to achieve a competitive level of efficiency with respect to the various aspects of manufacturing can be the difference between success and failure.  While understanding the technical aspects of the manufacturing process is a “plus”, counsel can be a valued member of “production team” even if he or she doesn’t completely understand how the widgets are sown together.

You may be asked to become involved in a variety of different transactions that are related in some manner to the manufacturing function and its business goals and objectives. Examples of the issues that might arise include the following:

  • Drafting research and development and licensing arrangements relating to the creation or other acquisition of intellectual property that can be integrated into the manufacturing process. While companies often focus on technological innovations that can be used in their products, using technology to improve the product process can be just as important in forging a competitive advantage.
  • Negotiating and documenting contracts with suppliers to provide materials that can be used by the company in its internal manufacturing activities. While purchasing, or procurement, was often viewed as part of the manufacturing function, it has now developed into a separate management discipline.
  • Negotiating and documenting long-term contracts with outside, or contract, manufacturers that use their own facilities and equipment to manufacture a company’s products. Outsourcing of significant portions of the manufacturing function is a common strategy for firms of all sizes. In many cases, the outside manufacturer also assists in distribution of the finished products.
  • Designing and implementing quality control and safety procedures that must be followed during the course of the manufacturing process. Counsel can often provide guidance on the steps that need to be taken in order to comply with laws and regulations applicable to the workplace and the performance of the finished goods.
  • Acquiring, through purchase or lease, facilities that are suitable for use in manufacturing activities. In most cases, the financial exposure associated with these transactions is substantial, and counsel must be mindful of licensing and zoning requirements that might impact the intended use of a building.
  • Acquiring, through purchase or lease, equipment and machinery necessary for the manufacturing activities. It is common for these inputs to be financed, at least in part, by commercial lenders that are willing to advance funds for the acquisition in exchange for a secured interest.
  • Negotiating and documenting contracts for assets and services ancillary to the manufacturing function, including transportation, parts storage, and warehousing of finished inventories. Contracts in this area cover protection of parts and raw materials before they are necessary for the manufacturing process and protection of finished goods as they await entry into the company’s distribution channels.

You can also provide assistance in other areas relating to the manufacturing function. For example, when the client is evaluating a potential contract manufacturer, you can participate in the legal and business due diligence investigation of the proposed partner.  You can also be extremely valuable when the client is looking to use foreign manufacturing partners, which is a common strategy for reducing production expenses by taking advantage of lower costs of labor and materials in foreign markets. In that situation, you may actually find that the best method for proceeding is formation of a joint venture and that means bringing to bear all of your experience with forming, organizing and launching what is effectively a new business!