Dont Shoot The Messenger free essay sample

In June 1998, Billings Equipment Inc. formed a new business unit and opened a plant in Seattle to produce a new line of earth-moving machines for the construction industry. The organization had a history of impeccable ethical treatment of suppliers and was considered to be a leader in the industry. Early supplier involvement in prototype and testing activity was cultivated to encourage active participation in the development of this new product line by all that had a vested interest in its future. Everyone involved, including suppliers, invested personal time and effort toward meeting the market timelines. Purchase agreements were negotiated, and parts now were being received to support production ramped-up toward market introduction. The push to production forced acceptance of early design of many components, which inhibited additional cost reduction. As designs became frozen and cost information became more complete, the projected total costs were going to exceed target levels by as much as 20 percent. The general manager realized the rising cost situation was beyond recovery and would impact the market pricing and success of the entire product line. A letter was sent to suppliers on declaring the regrettable necessity to reduce prices by 10 percent within 30 days. Buyers were to follow up immediately by contacting their top 30 suppliers. Noncompliance could result into the re-opening of previously negotiated agreements, possible cancellation of the product line altogether, or the consideration of other sources of supply. Everyone was uncomfortable moving the supplier relationships from a cost-based approach to a simple request for price reduction. Shortly thereafter, the general manager made an announcement during a strategy meeting with buyers to push for an additional 5 percent price reduction; suppliers had already complied with the 10 percent price reduction. The implications of the latest price reduction request landed Jeff in a predicament of his responsibilities to the general manager against developed supplier relationships. If you were in Jeff’s position, what would you have done to preserve relationships? A good buyer-seller relationship is a partnership, a win-win situation over the long run. A supplier who is treated with courteousness, integrity, and fairness will deliver a superior product at the best price. They will also provide good service, and will be receptive to emergency situations and special requests. A supplier who is treated fairly and well is likely to communicate his positive experiences with your organization to his associates. The following are guidelines for successful Supplier Relationships (Smeltzer, L. 1997): Use established supplier partnerships to best leverage the collective volume Be fair. Give all qualified suppliers an equal opportunity to compete for business. Maintain integrity. A supplier’s pricing is confidential and should never be shared with another supplier for any reason. Be honest. Never inflate requirements to obtain better pricing. Negotiate in good faith. Don’t change the requirements and expect the supplier to hold his pricing. Be ethical. Procurement decisions should be made objectively, free from any personal considerations or benefits. Be reasonable. A supplier is entitled to a fair profit. Pay promptly. The purchase order you issue to the supplier is your promise to pay for the goods and services you buy in a timely manner (usually within 30 days). Businesses are increasingly relying on their suppliers to reduce costs, improve quality, and develop new processes and products faster than their rivals’ vendors can. Organizations have started to evaluate whether they must continue to assemble products themselves or whether they can outsource production entirely (Choi, T. 2004). The issue isn’t whether companies should turn their arms-length relationships with suppliers into close partnerships, but how (Choi, T. 2004). Experts agree that American corporations, like their Japanese rivals, should build supplier keiretsu: close-knit networks of vendors that continuously learn, improve, and prosper along with their parent companies (Choi, T.2004). Describe the ethical issues involved. Commitment and Trust are indicators of ethical behavior; along with collaboration, these are key necessities when building and developing relationships. Preservation of and commitment to a relationship is greatly hindered following a breach of social obligations, such as the unpredictable actions of others or a lack of confidence in the cooperative nature of the relationship (Eckerd, S. 2011). This was demonstrated when the additional 5 percent price reduction was pushed. When a buying firm is perceived by the supplier to have undertaken some unethical behavior, the norms of the buyer-supplier social contract are violated (Eckerd, S. 2011). This breach of the social contract may cause the supplier to lose confidence in the buying firm’s commitment to a stable and mutually productive relationship (Eckerd, S. 2011). The following are some behaviors that erode trust between suppliers and buyers (Smeltzer, L. 1997): Lying/bluffing Amend/change the contract/commitment Poor attitude Poor communication Instability Repetitive requests to define contract Leaking/sharing confidential information/privacy Failure to pay in timely manner The following are behaviors that indicate a trusting environment between suppliers and buyers (Smeltzer, L. 1997): Follow-through Information exchange Open communication Sharing of cost savings Sharing of technical advances Knowledge about product Honesty Mutual respect Many companies can point to the occasional success story of how collaboration with a key supplier produced significant value. Those companies that are able to institutionalize consistent collaboration with key suppliers recognize that radical cultural transformation is required (Hughes, J. 2008). This entails not only formalizing new ways of inter- acting with suppliers but also actively dismantling existing business processes and policies that impede collaboration (Hughes, J. 2008). What is your assessment of the general manager’s approach to meeting target cost objectives? Target costing, developed by Toyota during the 1960s, is a process for ensuring that a product launched with specific functionality, quality, and sales price can be produced at a life-cycle cost that generates a satisfactory level of profitability (Lockamy,A. 2000). US firms are more wedded to traditional cost management practices and have deployed target-costing systems more slowly and less widely (Lockamy,A. 2000). This is evident in the general manager pushing for the initial 10 percent price reduction and then next pushing for the additional 5 percent price reduction.