The Common Thread in Supply Chain Disputes

Earlier this year on Talking Logistics, I spoke with Sarah Rathke, a partner at the international law firm of Squire Patton Boggs LLP. Her practice focuses on litigating supply chain disputes, and she also advises businesses on supply chain issues and maintaining productive supply chain relationships.

We kicked off the conversation by discussing a great example of a supply chain relationship that went wrong: Apple and GT Advanced Technologies. What were Sarah’s takeaways from that case based on the publicly available information? Here’s an excerpt of what she said:

It looks like what went wrong — and I see this all the time — is that the parties were developing a new technology, something GT Advanced Technologues had never done before (and probably something nobody had done before at that scale and complexity), and so they had a development agreement and they tied it to production. In other words, they entered into a very big production-level agreement, spanning years, putting hundreds of millions of dollars at stake, and they hinged that agreement to the success of the development program — and not only to it succeeding technically, but to it succeeding to the timeframe and cost parameters contemplated by the parties. And it would be nice if that worked all the time, but of course, the unexpected always happens.

The bottom line for people looking to learn from this experience is that nobody won…The parties engaged in a very costly gamble, and that resulted in failure of the program, and I’m sure added cost to both parties.

A lot of the supply chain disputes Sarah encounters usually involve the development of something new, whether it’s hardware, software, or a combination of both. “In a complex product, where new technology is being used or developed, nothing ever goes fully as everybody expects,” said Sarah. “Then the question becomes: Is your relationship strong enough and robust enough to work through the problems, and is your contract strong enough and robust enough to work through the problems, and both are important.”

She added: “I know a lot of times supply chain professionals think that it all comes down to relationships, and a lot of times it does, but the supply chain agreement — knowing for sure what your rights and responsibilities are — frames the relationship in a very real sense.”

I asked Sarah if there was a common thread between the root causes of supply chain disputes. In other words, is it possible to say, “If the parties had only done ‘X,’ then these disputes wouldn’t have happened”? Her response, in a nutshell: you can prevent bitter disputes through better communication and collaboration.

 

I encourage you to watch the rest of my conversation with Sarah (which has received over 2,400 views to date) for additional insights on this topic, including the role legal teams can play in enabling highly collaborative business relationships. Also, check out Sarah’s upcoming book, Legal Blacksmith: How to Avoid and Defend Supply Chain Disputes. Then post a comment and share your perspective on this timely and important topic.

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