Unethical Procurement Practices?
We often hear about the problems dealing with overseas markets. China has come in for extensive criticism regarding its business practices, especially with regard to intellectual property, but also in terms of the overall respect for ‘the rule of law’.
But as this case study shows, it may not all be one-way traffic when it comes to issues of ethics and trust. This example is a situation that was referred to us at IACCM by a member. What would you do in these circumstances?
Pressure to terminate the contract without cause Your purchasing department is under constant pressure to deliver savings. Over recent years, more and more business has been sourced to low-cost countries. Several months ago, you awarded a large supply contract to a manufacturer in a remote region of China. It resulted in substantial savings and included a minimum monthly call-off and a committed two-year term. You have been told that this contract was a major boost to the local community and resulted in significant hiring by your supplier.
However, due to a temporary drop in demand, your monthly shipments have actually been lower than forecast and you know the supplier has a stock build-up. Now, the category director tells you she has received a lower price offer from another Chinese supplier and she wants to terminate the original contract. When you explain there is no cause for termination, she simply demands that you switch supplier since the chances of the original contractor taking legal action against you are almost nil. You agree with this risk assessment, not least because this action will probably put your current supplier out of business and they are unlikely to have the funds to pursue an action.
In the ‘real life’ situation, the contract manager accepted the business pressure for savings and switched to a new supplier.
What would you do?