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Has a dispute arisen due to supply chain problems?

Blame the sudden uptick in consumer demand during the pandemic. Blame “just in time delivery.” Call it the “bullwhip effect” – a small flick of the wrist creates a large amount of movement on the other end. Supply chains are off, and that’s creating havoc throughout the economy.

According to an analysis by The World on PRX, manufacturing has been suffering from supply chain problems, too. Attempts to manufacture ventilators, for example, are being held up by supply chain problems. They can’t get the bolts they need. Bolts are relatively easy to manufacture, but they’re used in a wide variety of products. Producers are scrambling to fulfill all the orders, even if their factories have been online during the lockdowns.

Manufacturers and distributers are used to running lean, meaning they don’t keep stocks of excess inventory on hand because doing so drives up storage costs. That’s what “just in time” delivery means. Toyota pioneered the concept in the 1940s in an effort to stay nimble and deal with shortages at the time – and to turn any on-hand inventory into cash as soon as possible. The concept took off in the United States and around the world.

Just-in-time delivery relies on several assumptions, however. It assumes that goods are easy to move around, meaning that suppliers can dependably deliver products at a low cost.

These past 18 months or so, goods haven’t always been easy to move. Manufacturers were closed down at some points. And consumer demand was way up.

In the U.S., container ships are backed up due to a lack of available dock workers. In Asia, factories are back online but they can’t get access to ships. Now, there are additional COVID-19 infections in some ports, further disrupting the process of moving the goods we need.

The whole economy is on a time delay

Many companies are experiencing critical shortages. Has one of your suppliers had this problem? If so, they may technically be in breach of their contract with you, but there may be little you can do to get the items you’re depending on. And that could mean you’ll soon be in breach of contract with your customers.

In such a situation, you need to check your contract to see if there is a “frustration of purpose/impossibility of performance clause.” Such a clause can prevent an actionable breach when it is impossible – not just inconvenient – to fulfill the contract.

If you can wait for your order – and it could be several months – you may be wise to do so. If you can’t wait, talk to your business attorney about your options.