Supply Chain Top Tip: Engage With Your Suppliers – Don’t Beat Them Up!

Spend Matters has reported on the ongoing Apple and GT Advanced Technologies fiasco that is unfolding in the courts at the moment – most recently this article. Those who follow the story know, Apple's situation with GT is a mess.

The snippet below was in The Wall Street Journal over the weekend:

"When GT’s managers expressed concerns about some provisions of the contract, Apple responded that all of its suppliers agree to such terms and there was no room for negotiation, [GT Chief Operating Officer Daniel Squiller] said. He quoted Apple as having said: ‘Put on your big boy pants and accept the agreement.’”

When GT started operating the sapphire plant in Mesa, Ariz., in December 2013, Mr. Squiller said Apple employees assumed a level of authority that was "disruptive and prevented GTAT from managing its operations as it saw fit."

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He said Apple dictated what tools to use at the factory and prevented GTAT from speaking to the suppliers involved with the fabrication process of cutting and shaping the sapphire. Mr. Squiller said it cost 30% more than expected to make the sapphire, but Apple wouldn’t take responsibility for the increase."

Should suppliers seriously get “big boy pants” instead of working through a proper SLM (Supplier Lifecycle Management) and CLM (Contract Lifecycle Management) process? Just put on those best-practice big pants! (sarcasm)

This is pathetic, especially for a firm like Apple that has repeatedly been recognized for its excellency in supply base management. Gartner has actually listed Apple as the No.1 performer worldwide for the past 5 years. But despite owning the top spot in Gartner’s Supply Chain Top 25 list, it appears that Apple uses a grossly neglectful, even abusive, sourcing, contracting and performance management process. This challenge reminds us of the "misclassification" 1099 vs. W2 issues prevalent in the staff augmentation world, which, in a sense, product outsourcing is similar to. In this case, GT wasn't "really" operating as a true supplier since they didn't control its own work. Interesting to see how the court will treat this aspect, although it seems difficult for GT to argue that it was too incompetent to know when to say no or what they were signing on to.

The takeaway here is that CLM/SLM solutions and stakeholder involvement is necessary to managing critical relationships – clearly, letting product management run roughshod over suppliers is not in the company's best interest. Also, it’s time for Apple to live up to its lofty billing.

Voices (3)

  1. paradox:

    Flipping through the 250 page agreements, I cannot help but noticing Apple gave its lawyers the driver’s seat. Exploiting to perfection Apple’s formidable bargaining position and the fact GTAT could not do much else than accept whatever Apple would throw at them, Apple lawyers crafted contracts that are perfect legally but terrible from business perspective – almost a classic example of what happens when you let lawyers run the show. Every seasoned negotiator will confirm this: if you aim at entering in a long term contractual relationship with a party, the terms must be balanced for the relationship to work. Instead, Apple squeezed GTAT dry. Look at what this “great” contracts brought to Apple: no sapphire in iPhone 6, $450 million in limbo, bad press, angry Arizona, useless factory, scared-away potential suppliers. Grabbing GTAT by the neck and banging the question to its head “why did you sign and why couldn’t you perform” does not help much, does it?

  2. Bitter and twisted:

    Apple treat everyone like this, but up to now Fortune has favoured them and nothing blew up. And Gartner gongs are just halo effect.

  3. mike robertson:

    Interesting article Thomas and reflects what we have been saying..

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