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April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review Oct. 31, 2005 / 28 Tishrei, 5766

Supplier struggle

By Rabbi Dr. Asher Meir


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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


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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