While I have not been involved in this directly, I imagine there should be contracts set up by the company's legal team to mitigate this. There should be clauses that protect the company if the vendor falls through and especially if their products and services are not performing up to expectations. This should protect the company from any losses if there are breaches in the contract. 

However, if the vendor evades responsibility, the company has to take necessary action to protect themselves and their customers. They should begin by immediately pulling off the affect products off the shelves and release a statement. Further testing should be done to evaluate the root cause of the issue and establish if this has always been the case with the vendor and this is a pattern repeating itself. Legal action such as suing should be considered if the consequences were dire. Otherwise, the most realistic option is to deal with a financial loss and pull all the affected products from production and evaluate new options for vendors.  

This discussion reinforces the importance of doing your research and requesting smaller batches to confirm the service/product you are requesting meets expectations. This requires maintaining close contact and communication with vendors. As already mentioned, it is important that if a product a company is trying to sell requires a service or part provided by a vendor that a contract is set up to ensure that in the end, all aspects/components of the final product meet design requirements and specifications. If the product is failing verification and validation because the vendor is not meeting expectations on their end than the contract can be terminated and depending on the degree of negative cost variance may transpire into legal action or finding other vendors. I had an issue like this at work, where the manufacturer of a specific model of x-ray detector plates had made changes to the battery sizes that ended up loosely fitting in older model detector plates and had to be refunded and recalled.

I wanted to expand on @srp98 response and how they mentioned that a legal team could get involved during a situation where the vendor delivers a subpar product to the company and are unsure how to proceed. The company can legally reach out to the vendor and inform them where the product was unsatisfactory as per their agreement. This can include official meetings to engage in communication where the company may request for the vendor to change their design and fulfill the original contract or the company may request for compensation from the vendor to alleviate any losses incurred by the company. If this does not seem to resolve the problem then the company may choose to take legal action through arbitration in court, however, this is a lengthy process that has an unknown outcome. The safest route for the company would be to terminate the contract with the vendor regardless of the extra costs the company may face. At the end of the day the company needs to deliver quality products to its customers and they must always strive to achieve the best results in their work.

Auditing suppliers/vendors and their products is a key step to figuring out if a company will be a good fit to your need. Additionally, it is extremely important to create a binding contract to hold the vendors responsible for any quality issues linked to their goods. However, if a company realizes there might be product issues that are tied to vendor quality, there are a few things a company can do if the vendor does not take responsibility. One is evaluating the root cause of the issue (hopefully linked to vendor quality), which can be an integral step to hold the vendor legally liable. Additionally, it is important for the company to take necessary steps to ensure customer satisfaction and safety (i.e. making a statement and recall if necessary). Lastly, if vendor culpability can be proven, it is a good idea to receive compensation via a law suit.

The first step is to investigate the vendor's product and determine the root cause of the issue. If the issue is indeed the vendor, then the buyer must assess if it's worth it to challenge the vendor. Some issues may be mild and others might be severe. If the issue is severe, then vendor must be notified of the problem. The company should always attempt to negotiate a resolution with vendor. However, if the vendor does not take responsibility or fails to provide satisfactory resolution, the company must again do a cost-benefit analysis whether or not to take legal action. This could involve filing a lawsuit against that vendor to seek damages and or terminating its current contract. In certain occasions, companies may blacklist against vendors that don't provide the minimum quality and failed to reach a solution. This can be extremely damaging as having a good reputation can affect future contracts. Other companies may take reference and not buy from the same company as well. However, most companies do include specific quality clauses and requirements. It's often the case that companies will want to constantly receive samples from their vendors and do quality control to see if the product they receive is up to par. 

A real life example is Boeing's 737 Max. It was found that Boeing outsourced the design and production of key production to vendors. Boeing failed to provide adequate oversight and quality control. One of which designed and made the Maneuvering Characteristics Augmentation System (MCAS), which was later found to be responsible for two deadly crashes that killed 346 people. Boeing got substantially fined and later changed its quality control pipeline to catch these issues.

I agree with what has been said so far in the thread, as taking legal action is a good last resort due to how long it takes and how many delays it can cause, and the vendor and other team members should be contacted first to solve the issue. I think there should be a clause in the first place, like the original poster mentioned, so the success of the company does not hinge on the vendor for success. If the vendor can “evade responsibility,” then that means the project system allowed this to happen, and preventative measures should be taken so this does not happen again from a third party. Vendors know more about their own product than you do, so they can hide faults and issues much better than you can detect them. This means that the company should do more research and fill in the gaps on the vendor before selecting them, ensuring that the vendor will not come and cause issues in the future. 

If the vendor is failing, then teams might try to compensate for the vendor's shortcomings by adjusting tolerances or adding extra testing with the sub-par vendor-provided product. This will create hidden complexity in the final product and likely lead to disastrous failure later on in the project. However, risk and time must be balanced to ensure the company stays up to date, and it is the PM’s job to figure out what is more valuable between the risk and time. This is also why secondary vendors are sourced as well, because if the first vendor fails and the second vendor is more expensive but reliable, the PM can fall back on the second vendor and keep the project going even if it costs much more than the first vendor. Ensuring that issues like these are not escalated to the public level is also crucial, as a damaged reputation can hurt the company more than the vendor issue in the long run. Have you seen vendor issues get escalated to the public level before? What’s the best way to repair a damaged reputation? Do you think over-testing vendor parts is essential to prevent something like this from happening?

Companies usually rely on the informal leverage systems when legal protection is not effective. Even though there aren't any explicit quality clauses, vendors are usually part of a larger network where reputation, contracts, and long-term partnerships are a priority. Companies usually enforce pressure by threatening to cut off future business or delay payments, or they try to escalate the situation within the industry. In multiple cases, vendors usually comply mostly if it affects the credibility with one major client; because it can cause a ripple effect across other clients due to tightly connected industries like medical devices.

Furthermore, companies can potentially internalize the problem temporarily while restructuring their supply chain. In many cases companies wait for the vendor to take responsibility, and internally medical devices begin to insource the components or look for a redesign. Companies can shift their production to alternative suppliers to maintain their own operations. Consequently, there is a shift in focus to endurance, which is more crucial for short term conflicts. Over time, there can be more advanced strategies, such as dual sourcing or integrating certain components to reduce dependency on unreliable vendors. There can be situations where formal accountability is not present. In this case, do you believe companies should prioritize maintaining their own operations and insourcing components or push towards more accountability even if there are risks?

When a vendor evades responsibility for their product there are multiple approaches that a company can take to fix the problem. Depending on the contract signed a company can take the legal approach if the product quality does not match what the contract specifies. However, there are many cases where this is not the situation, where then the solution becomes a lot more complicated. At this stage the only leverage a company has left is their future business, unless they are very lucky and are allowed to back out of their contract with no penalties. However, depending on the relative size of the companies involved threatening to withhold future business may not get the mileage desired, as a very small company purchasing from a major manufacturer simply does not have the purchasing power necessary to really impact them. Realistically if there is such a situation, the smaller company will have to ride it out and either pay the penalty to swap suppliers, or accept the inferior product until the earliest opportunity where it is legally permissible to swap. The best way to solve this problem is through proactive validation of the product before signing any contracts, otherwise you are taking a risk and if you take the risk and get a bad supplier you are stuck paying the cost.