Pat James, the purchasing agent for a local plant of the Oakton Electronics Division, was considering purchasing a component from a new supplier. The new component Pat is considering purchasing will result in a trading quality for a reduction in cost. The difference between the price of the possible new component, $1.90, and the standard purchase price of $2.10 will result in a favorable price variance and offset an unfavorable price variance from another component. Should Pat offset the unfavorable variance, his overall performance report will qualify him for the annual bonus. Pat would also stand to receive an impressive performance rating which would help ensure a higher paid position at division headquarters. Although the outcome of the decision to use a cheaper component will benefit Pat's professional growth, the quality and reliability of both the new component and supplier are questionable. By the time the customers and company begin to suffer the repercussions, Pat will be reaping the benefits professionally. Pat’s company has set professional performance goals and a system of rewards that can be obtained by actions that are not in the best interest of the company. The dilemma being, simply, should Pat put his interests over that of his company? The supplier Pat is considering has a reputation of making deliveries on time for the first few months only. Although the new component, reportedly, has only a slightly higher number of defective units, the life of the component is 25% less than the standard. Pat sees very little personal risk as he expects his successor will be responsible for handling any problems associated with this decision. The primary stakeholders that will be affected by the decision are top management and/or owners of Oaktown Electronics Division, investors of Oaktown Electronics Division, Pat, the purchasing agent successor, the current component supplier, the new component supplier, employees, customers, and possibly the community dependent upon the type of finished good. The initial change will directly affect the company that has been supplying the part by a loss in sales revenues, and the new supplier will gain that business. The initial problems should surface in delayed delivery of the new component to the local branch of Oakton Electronics Division around 3 to 6 months after the change in supplier The delayed deliveries will delay production, thus, initially affecting employees of the local plant. The change in production will affect the ability of the company to supply customers and reduce equity for the owners, top management, and investors. When the trend continues, the delays will likely prompt management to adjust expenses in terms of plant workers' direct labor hours and wages. As there is not expected to be much difference regarding the number of defective units, the next problems will eventually come from customer dissatisfaction from the shorter lifespan of the product. Customers could, in turn, chose an alternative product and supplier. Oakton Electronics Division would suffer in terms of losing customers and tarnishing their reputation. In the case that the short lifespan of the component could eventually pose a safety risk, all stakeholders, including the community, will likely be affected. The purchasing agent will be responsible for correcting these problems by finding a higher quality component and would also have an unfavorable performance report when compared to that of his predecessor. In the case that the company investigates these potential problems and finds the purchasing agent, Pat James, acted in his own self-interest disregarding quality standards, he may be held accountable in accordance with company policy. Furthermore, if Pat decides to use the subpar component, he will be tarnishing the reputation of Oakton Electronics Division. The finished good will have a stigma associated with being a product of poor quality. Even if the current purchasing agent corrects the problem in a timely manner, the damage to the reputation of the company and the product may not be easily corrected. The effects of customer outrage on the internet, more specifically social networking and online reviews, can be devastating. Twitter users target hashtags both positive and negative for companies and create a campaign to publically criticize the quality of products and service problems. These target hashtags lead to replies, retweets, and autobots creating a popular trending topic. Facebook users target company pages to share their disgust. The average consumer will “follow” or “like” a company if they receive incentives in the form of discounts, promotions, sweepstakes, etc. and express outrage for poor products and customer service. Pat’s decision could ultimately result in the decrease of brand value for his company. Assuming Pat's main goal is to ensure an impressive overall performance report, annual bonus, good performance rating, position at division headquarters, and a significant salary increase, an alternative to the decision Pat is considering would be to contact the original supplier to renegotiate the price Oakton Electronics Division is currently paying. If the original supplier is unwilling to negotiate a lower price, the purchasing agent could find a supplier and component of comparable quality and price then try to renegotiate after the impact on the original supplier. This alternative presents the original supplier as the primary stakeholder. Pat should approach the original supplier for a discount of 10% to keep their business as opposed to the 100% loss from purchasing from a competitor. Another alternative could be to negotiate this discount for the possible payment of cash within the first month and/or signing a contract to guarantee their business for X number of months. These options will not present the negative impacts on the business or the stakeholders that the decision Pat is weighing will cause, but will have the possibility to result in serving the interests of Pat. Assuming there is no formal stipulation in company policy as Pat foresees little personal risk with choosing a subpar component to better his career, Oakton Electronics Division should look into updating their company policy and eliminate a system of rewards that promotes poor judgment from employees. Companies, in my experience, have initial and annual corporate compliance training and strict policies in place to handle practices that are not illegal but are not ethical. If Pat does make the decision to use the new component, he would be following in the footsteps of those that get ahead by any means necessary and are not held accountable for their actions while limiting professional growth for honest, hard-working people as they are expected to maintain that overall performance. Oakton Electronics Division should clearly make policy changes that would eliminate employees like Pat James from considering unethical decisions that would not serve the best interest of the company for self-serving, personal gain.
Pat should under no circumstances purchase this particular component from a new supplier. Although it is the job of a purchasing agent to find the component at the lowest price, the purchase agent is also accountable for the quality and reliability of the material. Ethically, Pat should not be accepting a bonus for doing his job. A kickback in any form will present a temptation for a purchasing agent to cut corners on quality and/or cost when considering buying components for personal gain instead of looking out for the best interest of the company. Incentives such as money, promotion, gifts, favors, etc. for employees of any position in any company to reach a goal promote self-serving ideals of cutting corners and clever ways to beat the system.