Contract Manufacturing: Dealing with Supply Chain Ethics Challenges

This case describes a number of situations in which important customers of a major electronics manufacturing firm (contract manufacturer) behaved in a manner that could be considered “ethically challenged.” The case is told from the perspective of the EMS firm’s ECO, who was personally involved in addressing these issues.

Issues with three customers are described. All were a significant portion of the EMS firm’s overall business. In one, a customer misled the EMS firm about its order receipts, leading to the EMS firm acquiring a substantial excess inventory that the customer was contractually required to pay for. The customer threatened to withdraw its future business if forced to make the payment.

A second customer, facing a profit shortfall, demanded a payment for a “warranty problem.” The EMS firm faced difficulties with a third customer related to a small R&D firm that it purchased at the customer’s request, in order to serve the customer’s engineering needs.