Answer & Explanation:Read the “Laxtec, Inc” case , chapter 19 and the HBR article. shown below, then answer the following questions in the attachment . NOTE: For each of the questions, please refer to specific concepts from Chapter 19 and the HBR article. The only reference you have (Chapter 19, “Laxtec, Inc” case and the HBR article.
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Week 13 Discussion Forum Assignment
(20 points possible)
Read the “Laxtec, Inc” case shown below, then answer the following questions.
NOTE: For each of the questions, please refer to specific concepts from Chapter 19 and the HBR article.
1. List the clear ethical violations in this case. Explain.
2. List the gray ethical areas. Why are they gray?
3. What should Sherry do?
4. What should the parent company do?
Note: The same deadlines exist for this discussion forum as in the past.
Thursday 4/27 9pm – first individual posts
Saturday 4/29 9pm – firm team post (team answer)
Monday 5/1 6pm – second individual posts
Monday 5/1 9pm – second team post (critique of another team)
I will review the individual posts in each team’s forum to determine comprehensiveness of discussion within the
team. The major part of the grade will be based upon the team’s two contributions in the whole class discussion
forum, although I will also provide a portion of the grade for the level of team discussion.
Please let me know if you have any questions.
Prof. Tim Smunt
LAXTEC, INC.
Company Background
Laxtec, Inc., is a subsidiary of a Texas-based company that manufactures surveillance cameras. Laxtec’s main
function is to manufacture the motor and arm that rotates the cameras. Laxtec is located in Illinois.
Laxtec, Inc., has no individual ethical regulations, nor does it have an ethics team within the organization.
Laxtec’s parent company however, has an ethics staff within corporate headquarters that deals with questions of
ethics for its employees. The corporate headquarters does not take an active part in exercising ethics requirements
in its subsidiaries due to staff limitations.
Situation
Laxtec has been directed by its parent company to manufacture a new arm that will rotate 360 degrees instead of
the present 180 degrees.
Since Laxtec is operating near full capacity and cannot extend its resources to design and manufacture the special
motor and control unit needed for the 360-degree specification, it has decided to subcontract this project.
Knowing that only a few companies would be able to design and manufacture the arm, Peter Ferdenzi, president
of Laxtec, instructed Sherry Morris, director of supply management, to inform the bidders that there were many
companies bidding for the contract. This would insure that the bids received were competitive.
One out-of-town bid and three local bids were received. Mr. Ferdenzi called Sherry into his office to discuss
them. Sherry told Mr. Ferdenzi that the out-of-town bid from Aster Company appeared to be the most favorable.
But Mr. Ferdenzi told Sherry to discard it because he wanted to subcontract the motor within the area to enhance
business and social relationships with the community. Out-of-town contracting would only cause friction among
the workers. The out-of town bids, explained Mr. Ferdenzi, were simply to obtain pricing information.
Sherry looked over the remaining bids and explained that Prextel was the next best choice, then Gordon, Inc., and
lastly Tomos Corporation. Sherry was familiar with the Tomos Corporation and told Mr. Ferdenzi that it had been
involved in questionable business activities and was being investigated by the local authorities.
Mr. Ferdenzi looked sternly at Sherry when he heard the Prextel bid was the best and told Sherry to discard it. Mr.
Ferdenzi’s ex-wife was the director of the research and design team at Prextel and relations between the two were
difficult, to say the least.
Finally, Mr. Ferdenzi agreed to award the bid to Gordon, Inc. Mr. Ferdenzi told Sherry to negotiate the specifics
with Gordon. Mr. Ferdenzi also told Sherry to delay notifying the other bidders of the award until two weeks after
production had started with Gordon. In this way, it would not be necessary to listen to the other suppliers “beg”
for more consideration.
Negotiations between Gordon and Laxtec were finalized and production started. A problem arose within the
second week, however, when Laxtec’s quality representative noticed that the materials being used were not of the
quality standard stated in the contract. Sherry immediately called a meeting with Gordon, Inc. During the meeting
it became apparent that there was a lack of honesty in the development of Gordon’s bid. Further, Gordon’s
attempt to use substandard materials was an attempt to increase profit. Sherry realized that Laxtec could not rely
on Gordon, Inc. She stated that she would cancel the contract based on fraud. Gordon, wishing to avoid any
litigation and bad publicity, agreed and passively backed out.
Luckily, at Mr. Ferdenzi’s direction, Sherry had not notified the other bidders of the award to Gordon. Sherry met
with Mr. Ferdenzi again and recommended that Prextel be awarded the contract. Mr. Ferdenzi refused and ordered
Sherry to meet with Tomos and negotiate a contract.
The Dilemma
Sherry called Chuck Moore, president of Tomos, for a meeting the next day. Chuck knew that if Laxtec wanted
him to negotiate a contract, it must be in desperate need of someone. Accordingly, Chuck told Sherry that a
donation to the Tomos pension fund would make things much smoother in the negotiations. Sherry brushed the
comment aside and finalized the meeting time. Sherry told Mr. Ferdenzi about the pension fund. Mr. Ferdenzi
simply shrugged his shoulders and told Sherry to pay Chuck since it was essential to have Tomos accept the
contract.
Sherry was unsure of what to do. In her last two jobs, she had refused to participate in similar activities and was
fired on both occasions. That was when she was single. Now Sherry had a house and two children to support.
Dr. Timothy L Smunt – BA 477
Chapter 19
ETHICS AND SOCIAL RESPONSIBILITIES
BA 477 Purchasing and Supply Management
Dr. Timothy L. Smunt
19-1
Dr. Timothy L Smunt – BA 477
LEARNING OBJECTIVES
1.
2.
3.
4.
5.
Learn what ethics is and how pressure to act
unethically can surprise you.
Learn the legal implications of ethics.
Learn the individual and organizational
reputation issues of ethics.
Understand the specific ethical traps that can
arise in supply management.
Learn about the dilemmas of breaking promises.
19-2
Dr. Timothy L Smunt – BA 477
ETHICS IN SUPPLY MANAGEMENT



Ethics are the guidelines or rules of conduct by
which we aim to live.
Does running an ethical operation yield positive
results for a company?
A literature review of papers investigating whether
increased social responsibility results in favorable
financial performance found:
33 studies showing a positive relationship
5 studies showing a negative relationship
 14 showing no effect or inconclusive results



Trust is everything!
19-3
1
SURVEY OF 4,035 EMPLOYEES
ACROSS A VARIETY OF INDUSTRIES
o
o
o
o
o
Dr. Timothy L Smunt – BA 477
97% said good ethics are good business
67% said that ethical conduct isn’t rewarded in
American business
82% believe that managers generally choose
bigger profits over “doing what’s right”
25% said their companies ignore ethics to
achieve business goals
33% reported that their superiors had
pressured them to violate company rules
19-4
Dr. Timothy L Smunt – BA 477
DEALING WITH AN ETHICS CHALLENGE

A personal story.
19-5
Dr. Timothy L Smunt – BA 477
PROFESSIONAL SUPPLY MANAGEMENT ETHICS

The pressures that the marketplace exerts on
supply management departments and on
individual buyers make it essential that top
management and supply management
recognize and understand both the
professional and ethical standards required in
the performance of their duties
19-6
2
PRINCIPLES OF SUPPLY
MANAGEMENT PRACTICE
Dr. Timothy L Smunt – BA 477
Loyalty To Your Organization
Justice To Those With Whom You Deal
Professional Practices
1.
2.
3.

From these principles we will review 10 standards
of supply management practice
19-7
Dr. Timothy L Smunt – BA 477
1. ETHICAL PERCEPTIONS
Avoid the intent and appearance of unethical or
compromising practice in relationships, actions,
and communications.
19-8
Dr. Timothy L Smunt – BA 477
2. RESPONSIBILITIES TO THE EMPLOYER
Demonstrate loyalty to the employer by diligently
following the lawful instructions of the employer,
using reasonable care and only the authority
granted.
19-9
3
Dr. Timothy L Smunt – BA 477
3. CONFLICT OF INTEREST
Refrain from any private business or professional
activity that would create a conflict between
personal interests and the interests of the
employer.
19-10
Dr. Timothy L Smunt – BA 477
4. GRATUITIES
DO NOT solicit or accept money, loans, credits, or
prejudicial discounts, nor the accept gifts,
entertainment, favors, or services from present or
potential suppliers that might influence, or
appear to influence, supply management
decisions
19-11
Dr. Timothy L Smunt – BA 477
GUIDELINES IN DEALING WITH GRATUITIES

Business Meals
 Occasionally
o
o
o

appropriate
For specific business purpose
Frequent meals same supplier should be avoided
Attempt to pay for meals as frequently as the supplier
Global Supply Management
 Foreign
cultures, special circumstances
gift giving of nominal value
 Careful evaluation of nominal value
 Reciprocal
19-12
4
Dr. Timothy L Smunt – BA 477
5. CONFIDENTIAL INFORMATION
Handle confidential or proprietary information
belonging to employers or suppliers with due care
and proper consideration of ethical and legal
ramifications and governmental regulations.
19-13
Dr. Timothy L Smunt – BA 477
EXAMPLES OF CONFIDENTIAL INFORMATION









Pricing and cost data
Bid or quotation information
Formulas and process information
Design information (drawings, blueprints, etc.)
Company plans, goals, strategies, etc.
Personal information about employees or trustees
Supply sources and supplier information
Customer lists and customer information
Computer software programs
19-14
Dr. Timothy L Smunt – BA 477
6. TREATMENT OF SUPPLIERS
Promote positive supplier relationships through
courtesy and impartiality in all phases of the
supply management cycle.
19-15
5
Dr. Timothy L Smunt – BA 477
7. RECIPROCITY
Refrain from reciprocal agreements that restrain
competition.
19-16
Dr. Timothy L Smunt – BA 477
8. GOVERNING LAWS
Know and obey the letter and spirit of laws
governing the supply management function, and
remain alert to the legal ramifications of supply
management decisions
USE YOUR LEGAL STAFF!!!

19-17
Dr. Timothy L Smunt – BA 477
KEY LAWS AND REGULATIONS IN THE USA





Uniform Commercial
Code
The Sherman Act
The Clayton Act
The Robinson-Patman
Act
The Federal Trade
Commission Act





The Federal Acquisition
Regulations
The Defense Acquisition
Regulations
Patent, Copyright, and
Trademark Laws
OSHA, EPA, and EEOC
Laws
Foreign Corrupt Practices
Act
19-18
6
9. SMALL, DISADVANTAGED, AND
MINORITY OWNED BUSINESSES
Dr. Timothy L Smunt – BA 477
Encourage all segments of society to participate
by providing access for small, disadvantaged, and
minority-owned businesses.
19-19
Dr. Timothy L Smunt – BA 477
10. PERSONAL PURCHASES FOR EMPLOYEES
Discourage supply management’s involvement in
employer-sponsored programs of personal
purchases that are not business related.
19-20
Dr. Timothy L Smunt – BA 477
IMPORTANT AREAS REQUIRING AMPLIFICATION



Avoid Sharp Practices
Competitive Bidding
Negotiation
19-21
7
Dr. Timothy L Smunt – BA 477
AVOID SHARP PRACTICES



Evasion and indirect misrepresentation
Just short of actual fraud
Sharp practices focus on short-term gains and
ignore the long-term implications for a business
relationship.
19-22
Dr. Timothy L Smunt – BA 477
EXAMPLES OF SHARP PRACTICES





A supply manager talks in terms of large quantities to
encourage a price quote on that basis.
A large number of bids are solicited in hope that the buyer
will be able to take advantage of a quotation error.
Bids are obtained from unqualified suppliers that the
supply manager would not patronize in any case.
An attempt is made to influence a seller by leaving copies
of bids, or other confidential correspondence, where a
supplier can see them.
Obscure contract terms of benefit to the supply manager’s
firm are buried in the small type of contract articles
19-23
Dr. Timothy L Smunt – BA 477
COMPETITIVE BIDDING




Invite only firms to whom they are willing to
award a contract to submit bids.
Normally, award the contract to the lowest
responsive, responsible bidder.
Keep competitive price information
confidential.
** Notify unsuccessful bidders promptly so
that they may reallocate reserved production
capacity. **
19-24
8
Dr. Timothy L Smunt – BA 477
COMPETITIVE BIDDING (CONTINUED)



Treat all bidders alike.
Do not accept bids after the announced bid
closing date and time.
Do not take advantage of apparent mistakes in
the supplier’s bid.
19-25
Dr. Timothy L Smunt – BA 477
NEGOTIATION

A professional should maintain high ethical
standards, such as:
 Competitors
are informed of the factors that will be
involved in source selection.
 All potential suppliers are given equal access to
information and are afforded the same treatment.
 Supply professionals strive to negotiate terms that
are fair to both parties
 Do not take advantage of mistakes in the supplier’s
proposal
19-26
Dr. Timothy L Smunt – BA 477
MANAGEMENT RESPONSIBILITIES



Written Standards
Ethics Training and Education
Departmental Environment
19-27
9
Dr. Timothy L Smunt – BA 477
DEALING WITH GRAY AREAS



Employer
Suppliers
Colleagues
19-28
Dr. Timothy L Smunt – BA 477
THE FOUR WAY TEST




Is it the TRUTH?
Is it FAIR to all concerned?
Will it build GOODWILL?
Will it be BENEFICIAL to all concerned?
19-29
Dr. Timothy L Smunt – BA 477
TAKEAWAYS
1.
2.
Ethics in the Supply Management Context
Management Responsibilities
 Written
Standards
Training and Education
 Departmental Environment
 Ethics
3.
Dealing with Gray Areas & Ethical Traps
 The
4.
Four Way Test
Dilemmas of breaking promises
19-30
10
Dr. Timothy L Smunt – BA 477
HBR Article – April 2011
ETHICAL BREAKDOWNS
BA 477 Purchasing and Supply Management
Dr. Timothy L. Smunt
HBR-1
Dr. Timothy L Smunt – BA 477
LEARNING OBJECTIVES
1.
Learn how and why employees bend or break
ethics rules due to those in charge being blind
to it or even encouraging it..
HBR-2
Dr. Timothy L Smunt – BA 477
ILL-CONCEIVED GOALS




Sales force maximizes sales rather than profits.
Sears example – mechanics sales goal.
Law firms example – billing.
Increased home ownership
HBR-3
1
Dr. Timothy L Smunt – BA 477
MOTIVATED BLINDNESS


“Independent” credit ratings
Hiring manager’s bias
HBR-4
Dr. Timothy L Smunt – BA 477
INDIRECT BLINDNESS


Merck example
Delegating unethical behaviors to others

“Do whatever it takes…”
HBR-5
Dr. Timothy L Smunt – BA 477
SLIPPERY SLOPES

Auditor example
HBR-6
2
Dr. Timothy L Smunt – BA 477
OVERVALUING OUTCOMES

Pharmaceutical researcher example
HBR-7
Dr. Timothy L Smunt – BA 477
HBR-8
Dr. Timothy L Smunt – BA 477
TAKEAWAYS
1.
2.
3.
4.
5.
Companies are putting a great deal of energy in
efforts to improve their ethicality; not cheap.
Despite all of these investments, observed
unethical behavior is on the rise.
Per article authors, solution is to avoid “forcing”
ethics through surveillance and sanctioning
systems.
Instead, ensure that managers and employees
are aware of the biases that can lead to unethical
behavior.
As a leader, be aware of your own blind spots.
HBR-9
3

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