 |
|
May 22, 2013
John Thorne:
They launched the 'Arab Spring' but now yearn for the good old days of a strongman
May 20, 2013
Richard A. Serrano: Is Meir Kahane's assassin now a changed man?
Melissa Healy: Genetic copies of living people from embryos no longer science fiction
Jewz in the Newz by Nate Bloom : Jews Inducted into Rock Hall of Fame; Anton Yelchin co-stars in New "Trek" film; Kutcher (but not Kunis) visits Israel; Jewish TV Star Praises Jewish Rap Star
The Kosher Gourmet by Cathy Pollak: WARNING: This WALNUT CAKE WITH PRALINE FROSTING, perfect for afternoon coffee, is addicting
May 13, 2013
Rabbi Nathan Lopes Cardozo: Why the giving of the document that would permanently change the world could only be done in desolation
David G. Savage: Church-state, literally? Supreme Court weighing public school graduation in a church
May 10, 2013
Rabbi Berel Wein: Be all that you should be
May 8, 2013
Peter Ford: Why China is welcoming both Israel's Netanyahu and Palestinians' Abbas
Warren Richey: Obama administration quietly backs out of appeal over new contraceptive mandate
Fred Weir: At Kerry-Putin meeting, US-Russia relations thaw --- a tad
The Kosher Gourmet by Leela Cyd Ross : Almost too pretty to eat, this colorful salad with Sicilian inspiration will tickle the taste buds and delight your visual sensibility
May 6, 2013
May 3, 2013
Kids, kittens the Same? With employee perks at struggling Internet pioneer Yahoo! it's hard to tell
Sandy Kleffman: Artificial kidney offers hope to patients tethered to a dialysis machine
April 29, 2013
Roy Gutman: Poland's new Jewish museum celebrates life, doesn't revisit Holocaust
Mark Clayton: Terrorism in America: Is US missing a chance to learn from failed plots?
Kim Murphy: Boston Bomber's 'Svengali' Revealed
Pete Spotts: Tiny satellites + cellphones = cheaper 'eyes in the sky' for NASA
April 26, 2013
Clifford D. May: Defense in the Age of Jihadist Terrorism
Sharon Palmer, R.D.: How to feel your best -- with plenty of energy, a healthy weight and optimal mental and physical function -- without driving yourself batty
April 24, 2013
|
| |
Jewish World Review
Oct. 31, 2005
/ 28 Tishrei, 5766
Supplier struggle
By
Rabbi Dr. Asher Meir
Is it unethical to play suppliers against each other to get the lowest bid possible?
http://www.JewishWorldReview.com |
Q. Recently a customer obtained a price quote, only to return a few days afterwards asking me to revise my quote to beat an even lower quote from a competitor. Is that ethical? How should I respond?
A. This game of playing suppliers off against each other is hardly new. The most famous exponent of this practice in recent generations was Jose Ignacio Lopez, purchasing czar for General Motors in the early 1990's. Lopez was famous -- or perhaps infamous -- for his multiple-round bidding process. GM would invite bids from a number of contractors, and then initiate further rounds of bidding on the basis of the lowest bids extant. Even after the bidding was done, Lopez would pressure suppliers for additional cost savings!
What were the results? On the down side, Lopez's policies alienated many long-term suppliers to GM, leading some to stop working with the company and others to adopt a more formal, arms-length relationship with the company in place of the previous cooperative relationship. On the other hand, he saved GE the astronomical sum of four billion dollars in only a year. Much of the saving resulted from actual improvements in production efficiency, rather than merely squeezing suppliers to GE's advantage.
Playing suppliers against each other in this way is not inherently unethical, but it does present many ethical challenges. Here are a few:
- Seeking bids must be in good faith. Jewish law forbids asking a price from a merchant if there is no intent whatsoever to buy from him, since this is an unjustified imposition. If the only purpose of the quote is to use it to browbeat another supplier, or to benchmark another round of bargaining, then this is taking advantage of the supplier. (1)
- It's forbidden to mislead the bidders. Most tenders are one-time encounters; if the purchaser doesn't have a firm intention to take advantage of the most advantageous bid, he should inform the bidders at the beginning of the process. Otherwise, he risks misleading them. (In Jewish law, this would be known as geneivat da'at, literally "stealing confidence".) (2)
- It goes without saying that it's forbidden to create pressure using bids which are fictitious or fabricated (shill bids). Of course the same applies when selling -- it's wrong to squeeze a higher price by inventing a non-existent new buyer. Outright lying is never an acceptable business practice.
- Another practice which some have attributed to Lopez is tearing up existing supply contracts in order to negotiate a better price. This would be considered a bad-faith practice. After negotiations have been concluded, and certainly after a contract is signed, seeking a new and more advantageous agreement can be condoned only if a truly material change in conditions occurred in the meantime. If a company simply can not make thrive under the existing agreement they may be compelled to revise it, but otherwise this is exploitative. (3)
Beyond the ethical considerations, there are also many practical considerations. GM did attain short-term cost savings, but there were also long-term costs due to alienation of suppliers. In GM's case cost savings were so huge that they probably gained in the long term, but this won't be the case for any firm which adopts this confrontational attitude.
Suppliers can take their own steps to protect themselves against this phenomenon. Many sellers take care to inform buyers that quotes should be considered final. A consistent policy can help forestall pressure from determined negotiators, even if it results in the loss of a few sales. It is worth pointing out that many suppliers themselves ultimately benefited from GM's pressure, as they ended up with remarkable productivity improvements and cost savings.
There's nothing wrong with being a tenacious negotiator and trying to obtain the best price from sellers. But buyers need to remember that there business is ultimately dependent on having a reliable relationship with suppliers, and take care to always deal with good faith and an eye to mutually beneficial long-term relationships.
SOURCES: (1) Mishnah, Bava Metzia 4:10. (2) Shulchan Aruch, Choshen Mishpat 228. (3) Shulchan Aruch, Choshen Mishpat 204
Every weekday JewishWorldReview.com publishes inspiring articles. Sign up for our daily update. It's free. Just click here.
THE JEWISH ETHICIST, NOW IN BOOK FORM
You've enjoyed his columns on JWR for years. Now the Jewish Ethicist has culled his most intriguing — and controversial — offerings in book form.
HARDCOVER
PAPERBACK
Sales help fund JWR.
|
JWR contributor Rabbi Dr. Asher Meir, formerly of the Council of Economic Advisers in the Reagan
administration, is Research Director of the Business Ethics Center of Jerusalem, Jerusalem College of Technology.
To comment or pose a question, please click here.
Previously:
Do family members have precedence in charity allotments?
What the world of business can teach us about our annual process of repentance and renewal
Are religious leaders subject to criticism?
Vindictive Vendor: How can I punish an abusive competitor?
Blogging Ethics: Is the blogger responsible for defamatory posts?
© 2005, The Jewish Ethicist is produced by the JCT Center for Business Ethics
|
