Purchasing Ethics

Scenario 1

Bryan Janz was just arriving back from lunch when his office phone rang. It was
his wife, Nina, calling from home. Nina told Bryan that FedEx had just delivered a
package addressed to her. The package contained a beautiful clock now sitting over
the fireplace. In fact, Nina said, “the clock looks absolutely beautiful on our living room
fireplace”. Thinking the clock was from a family member, Bryan asked who sent the
present. She said she did not recognize the name—the clock was from Mr. James
McEnroe. Bryan immediately told Nina that she had to repack the clock because it was
from a supplier who has been trying to win business from Bryan’s company. They
definitely could not accept the clock. Nina was very upset, and responded that the clock
was perfect for the room and, besides, the clock came to their home, not to Bryan’s
office. Because of Nina’s attachment to the clock, Bryan was unsure about what to do.

Assignment Questions

1. What should Bryan do about the clock?

a. Bryan should give the clock to his employer immediately and notify him/her

of the situation.

2. What does the Institute of Supply Management (formerly the NAPM) code of

ethics say about accepting supplier favors and gifts?

a. “Subscribe to and work for honesty and truth in buying and selling, and denounce

all forms and manifestations of commercial bribery”

3. Why do you think the supplier sent the clock to Bryan’s home and addressed it to

his wife?

a. I think that the supplier sent the clock to Bryan’s home address and to his wife

instead of him so that he could stay under the radar. If the supplier sent it to

Bryan’s work the supplier could have got in a lot of trouble. He also probably
 knew that his wife would want to keep the clock and he knew that if she fell in

love with the clock it would be hard for Bryan to tell her she couldn’t keep it.

4. Does the mere act of sending the clock to Bryan mean that Mr. McEnroe is an

unethical salesperson?

a. No because salesman are allowed to stretch the truth and deliver gifts to clients

since they do not deal with the selection process or the amount of money buyers

and suppliers deal with. However, sending the clock to his home address and

addressing it to his wife was definitely shady.

Scenario 2

Lisa Jennings thought that at long last, her company, Assurance Technologies,
was about to win a major contract from Sealgood Instruments. Sealgood, a maker of
precision measuring instruments, was sourcing a large contract for component
subassemblies. The contract that Assurance Technologies was bidding was worth at
least $2.5 million annually, a significant amount given Assurance’s annual sales of $30
million. Her team had spent hundreds of hours preparing the quotation and felt they
could meet Sealgood’s requirements in quality, cost, delivery, part standardization, and
simplification. In fact, Lisa had never been more confident about a quote meeting the
demanding requirements of a potential customer.
Troy Smyrna, the buyer at Sealgood Instruments responsible for awarding this
contract, called Lisa and asked to meet with her at his office to discuss the specifics of
the contract. When she arrived, Lisa soon realized that the conversation was not going
exactly as she had expected. Troy informed Lisa that Assurance Technologies had
indeed prepared a solid quotation for the contract. However, when he visited
Assurance’s facility earlier on a prequalifying visit, he was disturbed to see a significant
amount of a competitor’s product being used by Assurance. Troy explained his
uneasiness with releasing part plans and designs to a company that clearly had
involvement with a competitor. When Lisa asked what Assurance could do to minimize
his uneasiness, Troy replied that he would be more comfortable if Assurance no longer
used the competitor’s equipment and used Sealgood’s equipment instead. Lisa
responded that this would mean replacing several hundred thousand dollars worth of
equipment. Unfazed, Troy simply asked her whether or not she wanted the business.
Lisa responded that she needed some time to think and that she would get back to Troy
in a day or so.

Assignment Questions

1. The buyer at Sealgood Instruments, Troy Smyrna, is practicing a certain type of

unethical behavior. What is the term for this behavior? Why is it considered

unethical?

a. Troy is practicing reciprocity because he is abusively using large buying power to

restrict competitive market opportunities. This is restricting competition from the

other company whose machines are used at Assurance Technologies.

2. What should Lisa do in this situation? Formulate a response.

a. Lisa should reconsider her proposal to Sealgood Instruments and she should not

accept their counterproposal. It is clear that this company is acting unethically in

this situation and if Assurance Technologies involves themselves with Sealgood

Instruments they may encounter other problems in regards to ethics in the future.

Lisa should continue to look for other buyers.

Scenario 3

Ben Gibson, the purchasing manager at Coastal Products, was reviewing

purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly
disturbed about the amount spent on corrugated boxes purchased from Southeastern
Corrugated. Ben said, “I don’t like the salesman from that company. He comes around
here acting like he owns the place. He loves to tell us about his fancy car, house, and
vacations. It seems to me he must be making too much money off of us!” Jeff
responded that he heard Southeastern Corrugated was going to ask for a price increase
to cover the rising costs of raw material paper stock. Jeff further stated that
Southeastern would probably ask for more than what was justified simply from rising
paper stock costs.
After the meeting, Ben decided he had heard enough. After all, he prided himself
on being a man of action. There was no way he was going to allow that salesman to
keep taking advantage of Southeastern. Ben called Jeff and told him it was time to
rebid the corrugated contract before Southeastern came in with a price increase
request. Who did Jeff know that might be interested in the business? Jeff replied he
had several companies in mind to include in the bidding process. These companies
would surely come in at a lower price, partly because they use lower-grade boxes that
would probably work well enough in Southeastern’s process. Jeff also explained that
these suppliers were not serious contenders for the business. Their purpose was to
create competition with the bids. Ben told Jeff to make sure that Southeastern was well
aware that these new suppliers were bidding on the contract. He also said to make
sure the suppliers knew that price was going to be the determining factor in this quote,
since he considered corrugated boxes to be a standard industry item.

Assignment Questions

1. Is Ben Gibson acting legally? Is he acting ethically? Why or why not?

a. Yes Ben Gibson is technically acting legally. No he is not acting ethically. He is

performing sharp practices. Sharp practices are any misrepresentation by a buyer

that falls just short of actual fraud. Specifically he is using the willful use of

misinformation to knowingly deceive a supplier to realize some advantage.

2. What should Southeastern Corrugated do when they receive the request for

quotation from Coastal Products?

a. They should not deceive the buyer into lowering their prices. They should express

their concern about the quote and see if they can work out a lower price. If they

cannot work out a lower price then it might be logical for Southeastern

Corrugated to look for a new supplier.

Scenario 4

Sharon Gillespie, a new buyer at Visionex, Inc., was reviewing quotations for a
tooling contract submitted by four suppliers. She was evaluating the quotes based on
price, target quality levels, and delivery lead time promises. As she was working, her
manager, Dave Cox, entered her office. He asked how everything was progressing and
if she needed any help. She mentioned she was reviewing quotations from suppliers for
a tooling contract. Dave asked who the interested suppliers were and if she had made
a decision. Sharon indicated that one supplier, Apex, appeared to fit exactly the
requirements Visionex had specified in the proposal. Dave told her to keep up the good
work.
Later that day Dave again visited Sharon’s office. He stated that he had done
some research on the suppliers and felt that another supplier, Micron, appeared to have
the best track record with Visionex. He pointed out that Sharon’s first choice was a new
supplier to Visionex and there was some risk involved with that choice. Ben indicated
that it would please him greatly if she selected Micron for the contract.
The next day Sharon was having lunch with another buyer, Mark Smith. She
mentioned the conversation with Dave and said she honestly felt that Apex was the best
choice. When LUC asked Sharon who Dave preferred, she answered Micron. At that
point Mark rolled his eyes and shook his head. Sharon asked what the body language
was all about. Mark replied, “Look, I know you’re new but you should know this. I heard
last week that Dave’s brother-in-law is a new part owner of Micron. I was wondering
how soon it would be before he started steering business to that company. He is not
the straightest character.” Sharon was shocked. After a few moments, she announced
that her original choice was still the best selection. At that point Mark reminded Sharon
that she was replacing a terminated buyer who did not go along with one of Dave’s
previous preferred suppliers.

Assignment Questions

1. What does the Institute of Supply Management (formerly the NAPM) code of

ethics say about financial conflicts of interest?

a. When a buyer awards business to a supplier because the buyer, the buyer’s

family, or relative of the buyer have a direct financial interest in a supplier this is

considered a major unethical practice. In this situation the code of ethics

 specifically says that one should “buy without prejudice, seeking to obtain the

maximum value for each dollar of expenditure.” There is also a personal conflict

of interest in this situation.

2. Ethical decisions that affect a buyer’s ethical perspective usually involve the

organizational environment, cultural environment, personal environment, and

industry environment. Analyze scenario 4 using these four variables.

a. Organizational environment: Because there is a disagreement between Sharon

and Dave there becomes a conflict within the organization. While Sharon should

listen to Dave because he is her manager, she found out that Dave’s favor towards

Micron is due to a personal conflict, which results in unethical behavior.

b. Cultural environment: Sharon’s ability to feel like she can confront Dave about

the situation plays into the cultural environment of the organization. If Visonex is

grounded in an open door cultural policy than Sharon should feel comfortable

discussing the situation with Dave.

c. Personal environment: Sharon’s personal environment is conflicted when feels

conflicted with confronting her manager and making an ethically responsible

decision without being terminated. Dave’s personal environment is conflicted

because of his family ties in Micron, which leads him to a decision that is not the

best fit for this contract.

d. Industry environment: The industry environment is being affected by Dave’s

decision to use a supplier that is not the best fit for the contract. This will give

Visonex a bad reputation as an organization that bases supplier decisions off of

 family ties. The industry can be effected by poor contract decisions and will make

the industry less reliable in the future.

3. What should Sharon do in this situation?

a. Sharon should definitely go with her gut and choose to go with Apex. If she is

worried about being terminated by Dave because of this decision she should

approach HR or someone in higher management position with her concern. She

could also request a transfer to another location or manager.