Customer not notified of Product Changes - Responsibilities and Liabilities

[nicoleirvin]

I did a search for this, but after 15 minutes of looking through old threads, I thought I would try to save some time and just throw this out there - If there is a link to a thread that already addresses this problem, please let me know about it.

Now the problem.

One of our customers have asked us to sign an agreement that makes us responsible for any monetary cost incurred if we fail to inform them of a change in the product we sell to them. We distribute pipe, valves and fittings. We are not signing this agreement as the liability is just too great. Our problem with it lies with our suppliers - they don't tell us when they made a change to a product. We would like to get our suppliers to agree to inform us of all product changes, but I'm an unsure on how to implement. We don't do supplier surveys, but I'm thinking that this issue could very well be cleared by asking our suppliers to fill out a 'one-time' only survey and include on it the requirement to notify us of any changes. Or insert it into the supplier contract. How is this handle with other distributors - any suggestions?

Thanks for your help.

 

[Jen Kirley]

One way to stay abreast of supplied materials is to demand a certificate of compliance with each shipment you receive. You could monitor them for changes, but this wouldn't feel all that comfortable for me. I would feel like I'm at the edge of a potential emergency all the time.

Certificates of material compliance with each shipment are done with aerospace and other fields where material conformance is deemed important enough to warrant the added expense of dealing with the paperwork.

Of course, it's just a certificate. It could be missing, wrong, or (dare we say?) fraudulent, where your company, if you choose to accept the burden, would be tasked with unsnarling the problem. Your suppliers could choose not to sell to you, just as you could choose not to sell to this customer.

Any other takers on this one?

 

[Govind]

If you are buying a standard part from a dealer, obviously there is no way you will know if any change is made to material or process. These suppliers also have disclaimers in their Catalogues as to changes will happen without notice.
As long as it serves the form, fit and function, I would not worry about it.
If this is a Critical Part, I would rather look for an alternate source who can agree to inform changes.

For the suppliers who build products based on your drawing, you have the authority to add the clauses in the procurement specification to inform any changes to process, product and obtain approval. You can insist your supplier to submit a formal “ Manufacturing deviation request” with details.
For Critical parts changes to process may negatively affect the reliability of the product.
You can request a third party Qualification, Reliability test report before approving the changes.
Finally, you can draft your contract to provide “X” number of days for transition to new product/process change. Your customer may also ask you similar transition period.
Govind.

 

[Wes Bucey]

I did a search for this, but after 15 minutes of looking through old threads, I thought I would try to save some time and just throw this out there - If there is a link to a thread that already addresses this problem, please let me know about it.

Now the problem.

One of our customers have asked us to sign an agreement that makes us responsible for any monetary cost incurred if we fail to inform them of a change in the product we sell to them. We distribute pipe, valves and fittings. We are not signing this agreement as the liability is just too great. Our problem with it lies with our suppliers - they don't tell us when they made a change to a product. We would like to get our suppliers to agree to inform us of all product changes, but I'm an unsure on how to implement. We don't do supplier surveys, but I'm thinking that this issue could very well be cleared by asking our suppliers to fill out a 'one-time' only survey and include on it the requirement to notify us of any changes. Or insert it into the supplier contract. How is this handle with other distributors - any suggestions?

Thanks for your help.

Do I understand correctly?

1. You are a distributor, not a manufacturer.
2. Your products are off-the-shelf.
3. Your customer wants to know about changes in products (difference in product from first piece to later delivery.)
4. Customer wants you to agree to pay damages if you deliver products that have a change great enough to incur a monetary cost to the customer.

Will your customer define some circumstances which would cause them to incur cost? (Failure of product in use because changed product/design does not have strength/useful life of the original first piece?)

What is the customers end usage of such prosaic items as pipe and fittings?

Will customer pay a premium for this guaranty/warranty?

Will they limit the damages to the purchase price of the product or is the damage open-ended?

Bottom line:
There are many circumstances which would enable me to sign such a guarantee, but only a few that wouldn't. Among the few:

• failure to limit damages to purchase price of goods
• failure to specify the circumstances which would trigger cost reimbursement
  (mere oversight of notice without physical damage would not be a cause to trigger penalty in my view.)
• customer refuses to pay premium for extra guarantee.

The type of product you supply is typically sold based on Form, Fit, Function. What specifications have you agreed to on the product beyond those? To my mind, a pipe is a fungible product (one pipe of certain material, inside and outside diameter, and length is the same as another regardless of manufacturer or lot number for most ordinary use - dollar bills are fungible, even though they have a unique ID #) Would you agree to a contract which says you have to pay in dollar bills of a certain serial number series or only those printed at one particular printing plant?

 

[nicoleirvin]

Wes, that would be a yes to all of your first questions.

The customer end usage? They manufacturer sterilizers and they just indicated that they would not be able to business with us if we don't sign the agreement - FDA is making them get these agreements. The agreement is very vague and leaves us wide open for all liability - in other words, they don't put a limit on the monetary consequences and they will not pay a premium for the agreement. We are not signing the agreement as it stands. I did check out some of our catalogs and at least on of our suppliers put on their catalog that prices and design could change without notice.

Thanks to everyone for their feedback!!

 

[Wes Bucey]

Wes, that would be a yes to all of your first questions.

The customer end usage? They manufacturer sterilizers and they just indicated that they would not be able to business with us if we don't sign the agreement - FDA is making them get these agreements. The agreement is very vague and leaves us wide open for all liability - in other words, they don't put a limit on the monetary consequences and they will not pay a premium for the agreement. We are not signing the agreement as it stands. I did check out some of our catalogs and at least on of our suppliers put on their catalog that prices and design could change without notice.

Thanks to everyone for their feedback!!

Everything is negotiable!
Rewrite the agreement (use an attorney) to incorporate some of the suggestions in my earlier post. Offer it as a compromise.

There are two acceptable choices for your organization:

1. Fire the customer by refusing to sign the agreement
2. Work out a compromise which answers the REAL NEED at a price that's acceptable to both parties - this is definitely NOT something your customer should get for free.

In my opinion, accepting these terms as you describe without any additional compensation is very foolish.

 

[Al Dyer]

nicol,

May I ask if this was a form letter sent to all suppliers or just your company? If a form letter there is greater room for negotiation as opposed to a direct letter to your company only.

Keep us informed!

Al...

 

[nicoleirvin]

Al, they sent this letter to all suppliers. When I called their quality director, he said that only a few had actually signed and returned the form. When the salesperson called his contact at the company, he said that we were one of the few suppliers left who haven't signed it. figures.....

I'm suppose to have a meeting today with the president regarding this issue - I'll let you know what we decide to do.

One of their thoughts was to rewrite the agreement - I'll include your suggestions - Thanks Wes!

 

[Joe Cruse]

There are more of these "agreements" floating around out there than I'd ave thought.

We received one this summer from a small volume customer, who wanted us to sign off that our alloys are compliant under California's Porposition 65 listing. We don't do any business with them in a California plant, so they are evidently getting pressure from California to get sign-off so they can be kosher to sell their finished product in that state (automotive OEM and replacement parts).

We already do business with customers in California, with no problems, and aren't looking to sign ourselves to this type of liability any time soon, either. I know they want to :ca:.

Joe

 

[Jim Howe]

A few years back the company I worked for did business with a major defense contractor. The contract required that a first article inspection be performed by selecting 2 out of the first lot of 10. After this first piece was approved there could be no change in the following.
Plant
Process
Parts
Supplier
QA Manager
without expressed written approval from the customer.

Changes in parts and/or supplier was handled in one of four ways.
Mandatory part certification (add cost to PO)
One time purchase of all parts required (lifetime buys)
In house or third party testing to verify part (add cost to PO)
Request from customer to deviate (standard form supplied from customer)

Yes this included fittings and other fastners.

I would suggest what others have already advised and possibly using some of the ideas presented above. If it cannot be negotiated then do what Wes Bucey suggested "FIRE THEM"!
Good Luck!