Question

Cost Accounting

Dynamic Industrial purchasing manager has a friend who owns the company (COMP Inc) that produces some of the components that go into the X370A. COMP Inc. has been losing money in recent years. To save money, COMP Inc. has begun using a lower quality component and selling their components at a lower price to the public. However, the Dynamic Industrial’s purchasing manager has not renegotiated the contract and continues to purchase the components at an above-market rate to help the friend. Is the purchasing manager’s behavior in this situation ethical? Why or why not?

Your answer to Question should be no longer than one page

Answer 1

NO: The purchase manager’s behavior in this situation is NOT ETHICAL. Reasons for this are as follows:

1. Purchasing this lower quality or lower standard component at a price which is higher than the market price is an unethical practice as the Purchase Manager is wasting so much of the Company’s resources.
2. The purchasing professional is duty bound to their employer i.e Dynamic Industries to ascertain or identify the best component or product at the best cost, in a timely manner.Therefore every company has Purchasing standards in place to ensure that the needs and requirements of the company is the most prominent thing in any negotiations with the suppliers.In this case the purchase manager didn’t adhere to this principle and therefore it is unethical.
3. The Purchase manager purchasing the component at a price which is higher than the market price with the intention to help his friend is a biased treatment of favoring that supplier and is an unethical practice . This unethical practice will have an adverse impact on the brand image of the organization.
4. Even under normal circumstances when buyers have financial or other interests in the supplier’s organization it is considered as a conflict of interest majorly unethical. In this case it is not just a conflict of interest but also unduly favouring the friend at the expense of the Company and this is a serious breach of ethics by the purchase manager.
5. By Procuring the component which is of a lower quality at a price higher than the market price will lead to an increase in the cost of the product which is X370A without a corresponding increase in the quality of the end product and this will adversely affect the market for the end product , reputation and standing of the company etc . Therefore this action of the purchase manager is considered as unethical