Supply Chain “Domino” Reaction

Monday, August 8th, 2019

By Mark Zietlow

National Tell a Joke Day takes place on August 16, 2019.  So here’s a joke that’s both funny and true:

If you’re a supplier and you think nobody cares if you’re alive, try missing a couple of delivery dates. 

Our team is involved in several supply chain disputes and lawsuits.  Claims for delayed or missed deliveries are common, and often pop up in a supply chain lawsuit.

In a recent lawsuit, we represented a second-tier automotive supplier having significant payment issues with a first-tier supplier.  As you may expect, the first-tier supplier was having significant payment issues with the OEM.  The payment issues flowed down to every supplier involved in the supply chain.

The second-tier supplier claimed the first-tier supplier owed over $250,000.  The first-tier supplier claimed it had no obligation to pay, alleging the second-tier supplier had not complied with its Terms and Conditions.  It explained there were back charges for late deliveries.  It even alleged that no payment was owed because the second-tier supplier failed to give notice within 30 days of the dispute.

We were told by the first-tier supplier it had a supplier portal that contained these high-powered Terms and Conditions.  However, we discovered our second-tier supplier had never been given access to the portal.  Consequently, we successfully established that the first-tier supplier Terms and Conditions did not apply to the transaction.  The second-tier supplier recovered almost all the amount owed.

Every manufacturer and vendor is a link in several upstream or downstream supply chains.  When the link slows down or stops, the entire supply chain slows down or stops. When the entire supply chain slows down or stops, the entire payment process slows down or stops.

The first thing everyone scrambles to read is the Terms and Conditions of purchase and sale.  Since Terms and Conditions are often only a little-used link on a company website, many in the supply chain have little or no idea what the terms and conditions of sale really are.  In our case, the Terms and Conditions meant the difference of about $250,000..

Every supply chain dispute is a chain reaction.  Like dominoes, the dispute knocks down everything in its path.  Best practices to prepare for the chain reaction include:

  • Have well written Terms and Conditions
  • Know how your Terms and Conditions apply to each transaction
  • Know how your customer’s Terms and Conditions apply to your transaction
  • Know whether your Terms and Conditions will win the “Battle of the Forms”

Please contact our office at 616-392-4100 or send an e-mail to mark@innovative.lawyer to develop or refresh critical and enforceable Terms and Conditions. Mark Zietlow has prepared and enforced Terms of Sale for a wide variety of businesses, and has litigated supply chain disputes on behalf of both manufacturers and suppliers.

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