Who is Responsible for Defective Goods Delivered by a Supplier?

C

cplusplus - 2009

#1
Hi,
need some advises from you...recently we received wrong cable spool from one of our raw material supplier. Instead of red, 0,5 mm2, zero halogen cable we received red, 0,5 mm2, low-halogen. Phisical difference is only the number of splices, which we normally do not inspect on incoming inspection.
We built these cables to harnesses and got reject materials therefore, which we want to charge to this supplier, but they refuse it, stating that we could recognize it in the incoming inspection...is that right? Is that a base of rejection of the costs occured in our production?

thanks
 
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Sidney Vianna

Post Responsibly
Staff member
Admin
#2
Re: Responsibility for Defective Goods Delivered by a Supplier

Is that a base of rejection of the costs occured in our production?
I am not an attorney, and last time I checked, I don't think we have a practicing one at the Cove. Unless you have a contractual provision addressing the scenario you describe with your supplier, anything can be used by both parties for blame distribution purposes. As you can imagine, it could be worse. The defective harnesses could have been shipped to your customers. Your incoming inspection process for this specific product and supplier should be enhanced.

Concerning who is going to pay for the material, time, labour, etc. spent, the best you can do is to reach an agreement with your supplier. You can "expect" them to pay for 100% of the costs. Chances are, they might disagree and a long and costly legal battle would ensue. Would it be worth?
 
G

grismosw7

#3
Re: Responsibility for Defective Goods Delivered by a Supplier

If you are paying for red, 0,5 mm2, zero halogen cable and received red, 0,5 mm2, low-halogen then the costs should be your suppliers responsibility. It is their obligation to supply what you ordered. They should not be relying on your incoming inspection to catch their defects.

There are a lot of gray areas where a supplier can contest charges but this shouldn't be one of them, its pretty cut and dry. You ordered one thing, they gave you another.
 

Jim Wynne

Staff member
Admin
#4
Re: Responsibility for Defective Goods Delivered by a Supplier

If you are paying for red, 0,5 mm2, zero halogen cable and received red, 0,5 mm2, low-halogen then the costs should be your suppliers responsibility. It is their obligation to supply what you ordered. They should not be relying on your incoming inspection to catch their defects.

There are a lot of gray areas where a supplier can contest charges but this shouldn't be one of them, its pretty cut and dry. You ordered one thing, they gave you another.
Welcome to the Cove :D

The extent of the supplier's liability is dependent on a number of factors not in evidence here. For example, the supplier might have stipulated that his liability is limited to replacement of the incorrect merchandise. Sidney's advice here is correct, imo. If the supplier denies responsibility beyond replacing the incorrect product, it probably (depending on where this is happening) means that a lawsuit is the only option, and whether that's worthwhile or not depends on the extent of the costs incurred, among other factors.
 

Wes Bucey

Quite Involved in Discussions
#5
Re: Responsibility for Defective Goods Delivered by a Supplier

I don't practice law today, but Contract Law was my primary field.
Most competent lawyers would advise the two companies try to work out a compromise through non-court arbitration. This is simply because a formal court case could take YEARS to wind its way through the courts whereas arbitration is often resolved in WEEKS.

I'm pretty sure the buyer's side of the argument is damaged in regard to being able to lay claim for anything more than the replacement of the wrong material with the correct material because it appears the product was clearly and accurately marked differently from what the buyer ordered (is this true? the phrasing in the OP seemed a little ambiguous to me as to whether the supplier sent material labeled as "zero" when it was "low.") and yet the buyer proceeded to build harnesses with the wrong material. On that factor alone, many juries would side with the supplier, saying that the buyer has a duty to return the wrong material in as undamaged condition as possible, else it is liable to pay for the material not returned.

If the material was mislabeled and buyer innocently used it without having a practical way to tell the difference
(except maybe in a functional test when harness was complete), buyer would have a good chance of recovering damages for the labor and all other materials used in the nonconforming harnesses.

It is not clear from the OP's post whether the harnesses with the wrong material were declared non-conforming in-house or at a customer. In either case, the cause is failure to assure proper material before processing AND/OR shipping, clearly the buyer's error.
  1. What was the root cause of the error in shipment? (supplier's issue)
  2. What was the root cause of accepting non-conforming material? (Buyer may not have test lab, but it should have someone compare LABELS to see they match the requirements of the purchase order.)
  3. What was the root cause of building harnesses with the wrong material? (modern QMS systems stress that each step in a manufacturing process be able to assure it has the proper material from the preceding step.)
To understand WHY the buyer has a pretty weak case if it should elect to go to a formal court of law, folks can look up "contributory negligence" and "comparative negligence." Start with a WIKI for an overview (http://en.wikipedia.org/wiki/Contributory_negligence) Supplier MAY argue buyer had a duty to assure material was correct. If the material specification was so crucial to the harness (typically, zero halogen is a life/health/safety issue in case of fires since the insulating materials of the cable do not contain halogens -fluorides, chlorides, etc.), the buyer probably should have arranged for periodic independent analysis of the material shipments by a competent third party. (contract machining companies often do this when machining specialty alloys)

This is an interesting thread - I'd sure like to learn the final outcome and all the details when it is settled.
 

Wes Bucey

Quite Involved in Discussions
#7
Re: Responsibility for Defective Goods Delivered by a Supplier

Does this mean that you were a practicing attorney at one time?
Despite my legal education, I never worked for a law firm, nor ever appeared on behalf of a client in court. I worked as an investment banker and among my other duties oversaw the hiring of in-house and outside counsel to appear for us. I wrote our contracts which I had vetted by attorneys, much the same way document writers have their documents go though an approval process. I had absolutely nothing to do with writing or vetting investment bonds or IPOs on behalf of our clients. They were ALL written by outside Bond Counsel specialists. When it came to decisions regarding our legal options when we contemplated legal action, arbitration, or settlement (as plaintiff or defendant), I was only one vote on the Board.

Although I had much more corporate power when I ran a contract machining company, I did much less legal writing and much more face-to-face contract negotiating (the Contract Review we emphasize in modern Business and quality management systems.) The kind of contracts in the contract machining business were straightforward and ABC simple compared to the involved investment banking contracts.

Since I never intended to be a courtroom attorney, I never renewed the Bar.
 
C

cplusplus - 2009

#8
Re: Responsibility for Defective Goods Delivered by a Supplier

[*]What was the root cause of the error in shipment? (supplier's issue)
[*]What was the root cause of accepting non-conforming material? (Buyer may not have test lab, but it should have someone compare LABELS to see they match the requirements of the purchase order.)
[*]What was the root cause of building harnesses with the wrong material? (modern QMS systems stress that each step in a manufacturing process be able to assure it has the proper material from the preceding step.)[/LIST]
Hi, thanks for everyones reply :), basically it is a missidentifying, misslabelling issue from the supplier's side. They remove all the production labels, and put wrong shipping label on it.
So the reel had good label, acc. to the purchase orders. Only visual difference between the good and the bad cables is the number of splices, and this we inspect neither in incoming inspection nor during the production...
 

Jim Wynne

Staff member
Admin
#9
Re: Responsibility for Defective Goods Delivered by a Supplier

What was the root cause of building harnesses with the wrong material? (modern QMS systems stress that each step in a manufacturing process be able to assure it has the proper material from the preceding step.)
Yes, but the burden of properly marking the material for subsequent identification generally falls on the previous operation. If the present operator uses the standard method of identifying the material before further processing, he's off the hook and you need to back up until the source of the issue is found. In this case, it seems that it is a supplier problem, as the OP has now provided more information:
...the reel had good label, acc. to the purchase orders. Only visual difference between the good and the bad cables is the number of splices, and this we inspect neither in incoming inspection nor during the production...
This is one of those "special process" situations--there might no practical way to examine each incoming reel for splices, so some sort of fix needs to be put in further upstream such that mislabeled material can still be outwardly identified. There exists marking apparatus* for situations like this, and fixing this with anything other than inspection on the supplier's end would probably require creating separate identifying markings and part numbers (by the supplier) so that cables used in different final part numbers can be identified. This can get expensive, and once again a decision has to be made as to whether the additional expense is worthwhile.

As for the supplier's potential liability, if the material in question doesn't lend itself to 100% examination, and the supplier knows, or should know, that customers typically rely on his labeling to assure that the correct material has been received, it will probably be easier to make a case against him. But again, it depends on how much expense is involved, and whether or not the trouble of litigation is worth it.


*The link is just an example and not an endorsement.
 

pondo

Registered Visitor
#10
In the automotive world the supplier is at fault and is expected to burden the costs associated. It's pretty easy to determine who messed up. But as the costs go up it is not uncommon that the supplier threatens to not ship to you.

Note: The fine print of the PO may provide caveats.
 
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