Business Ethics and Suppliers | Kickbacks and Slotting Allowances

Identify major ethical issues that confront firms in their dealings with suppliers.

Ethics and Suppliers
Quite often a supplier or a producer will rely heavily on the other in doing business. The firm in the stronger position could treat the other unethically. For example, a strong supplier might threaten a producer with delivery delays to encourage bigger orders. Or a strong producer, dealing with a small supplier, might demand price cuts. A manufacturing firm that is implementing total quality management (TQM) will pressure its suppliers to improve their quality.

Is the gift a supplier gives to a purchasing agent a token of appreciation or a bribe or a kickback? Notice item 4 in the code of ethics of the National Association of Purchasing Management

What about an airline’s effort to attract business travelers by offering cash refunds to certain passengers if they paid full fare? Does that encourage employees to book much higher fares at company expense? Is it basically a type of kickback?

Principles and Standards of Purchasing Practice

Loyalty to your Organization Justice to those with whom you deal Faith in Your Profession 

From these principles are derived the NAPM standards of purchasing practice.
(Domestic and International)

  1. Avoid the intent and appearance of unethical or compromising practice in relationships, actions, and communications.
  2. Demonstrate loyalty to the employer by diligently following the lawful instructions of the employer, using reasonable care and only authority granted.
  3. Refrain from any private business or professional activity that would create a conflict between personal interests and the interests of the employer.
  4. Refrain from soliciting or accepting money, loans, credits, or prejudicial discounts, and the acceptance of gifts, entertainment, favors, or services from present or potential suppliers that might influence, or appear to influence, purchasing decisions.
  5. Handle confidential or proprietary information belonging to employers or suppliers with due care and proper consideration of ethical and legal ramifications and governmental regulations.
  6. Promote positive supplier relationships through courtesy and impartiality in all phases of the purchasing cycle.
  7. Refrain from reciprocal agreements that restrain competition.
  8. Know and obey the letter and spirit of laws governing the purchasing function and remain alert to the legal ramifications of purchasing decisions.
  9. Encourage all segments of society to participate by demonstrating support for small, disadvantaged, and minority-owned businesses.
  10. Discourage purchasing involvement in employer-sponsored programs of personal purchases that are not business related.
  11. Enhance the proficiency and stature of the purchasing profession by acquiring and maintaining current technical knowledge and the highest standards of ethical behavior.
  12. Conduct international purchasing in accordance with the laws, customs, and practices of foreign countries, consistent with United States laws, your organization policies, and these Ethical Standards and Guidelines.
Source: Reprinted with permission from the publisher, the National Association of Purchasing Management, “Principles and Standards of Purchasing Practice,” adopted January 1992.

Slotting Allowances
Slotting allowances are payments that supermarket chains demand up front from manufacturers that want the retailer to make space for a new product. More and more supermarkets are demanding cash from food manufacturers. Some supermarkets also demand pay-to-stay fees, which are payments to keep the manufacturer’s products on the shelves. Are supermarkets acting ethically when they make these demands? Is is fair to the manufacturers who pay the fees? Is it fair to the manufacturers who cannot afford to pay the fees and whose products do not get shelf space?

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