15.3 The Benefits of Working Together

No one can do it all. Every company is good at something. Much like how players on sports teams are often designated to play specific positions, companies in supply chains are organized similarly: a retailer is good at selling to consumers, a manufacturer is good at making products, and a logistics company is good at ensuring that products are getting to where they need to be. When everything is working, a supply chain is a beautiful, albeit complicated, machine that is perfectly adept at delivering the Seven Rights:

1. The right material

2. The right quantity

3. The right service

4. The right place

5. The right time

6. The right supplier

7. The right total cost

Of course, it sounds easy to identify these seven rights when you are looking for a supplier—achieving them is anything but!

For example, back in 2013, Apple thought that it had found the perfect partner in GT Advanced Technologies (GTAT) to usher in a new era in scratch-resistant displays for smartphones by covering iPhone screens with sapphire glass, which tends to be used as covers for luxury watches due to its combination of durability and transparency.

As an added bonus, this partnership would allow Apple to gain independence from Corning, which manufactures the industry standard Gorilla Glass to protect smartphone displays. Further, Apple sought to guarantee a high service level from GTAT by making a $576 million loan at a below-market rate and building a new manufacturing facility in Arizona, which boasts not only a very business-friendly environment but is also a leader in solar energy, which aligns with Apple’s environmental sustainability initiative.

On paper, it appeared that Apple would do for sapphire what it did for aluminum and set a new standard in smartphone manufacturing. This deal had all the makings of the perfect Seven Rights. But the deal crumbled in less than a year, once Apple discovered that GTAT would not be able to provide “the right quantity” due to high damage rate to its final products. As a result, cost projections for each sapphire display skyrocketed. GTAT’s corporate mismanagement further soured its relationship with Apple. By October of 2014, Apple decided to cancel the deal altogether and GTAT immediately entered chapter 11 bankruptcy.

At the heart of this cautionary tale lies the importance of incentivizing a partner’s quality.