A couple of decades ago when I was still working for a large original equipment manufacturer (OEM), I was sent to a purchasing-focused executive training class. The class was comprised of team exercises where each group was tasked with making “yes/no” decisions on various dilemmas. The key here was that the issues presented were not clear-cut, and the team’s task was to choose one or the other answer based on unanimous agreement. If no agreement could be made, that would be considered a black mark on team performance.
At this point, I only remember one of the exercises. The issue under consideration was whether to consummate a deal with a supplier by “gifting” the salesperson with a Rolex. To give him the watch made sense financially, since the contract would be based on a lower-than-market price. In other words, the overall savings under the contract over its duration would far outweigh the cost of the watch. So, “yes/no”—what would you have decided?
From my seat in the ballpark, the salesperson was asking for a “bribe”—not a gift—which, while it would benefit both my employer and him personally, was not a moral option. On our team of five, the other four supported making the bribe. I did not change my view. The end result was that we couldn’t come to a consensus conclusion. This created a bit of enmity between my teammates and me. I was a bit surprised that the other four teams in the class all concluded to give the salesman the watch.
In the following discussion, my fellow class members labelled me as being rather naïve. I, on the other hand, didn’t feel I had joined the industry to compromise my values.
And while the instructor didn’t comment overtly to me, I found out later that in his report to my sponsor for this class—our company’s vice president of purchasing—he also called me “naïve” and a “bit of a rogue.” Ouch!
But the truth of the matter is that over my career, I became aware of many cases of similar situations between U.S.-based OEMs and their suppliers. These types of decisions are explicitly counter to the “free market,” which these same OEMs tend to preach as a basic tenet of business. Of course, from an international trade perspective, there is no such thing as a free market. And, in conclusion, I did come to the realization that in that class, I was being a bit naïve. On the other hand, over my career, I never did participate in any activity that would compromise my integrity—and I still was able to make significant financial contributions to my employers’ bottom lines.
Read more of Paul Ericksen's supply chain management articles.
In my experience, most of the time, but not always, the “gift” comes from the buyer. I’ll list a couple of examples of this type of thing below.
I was hired at one company where I found out that a buyer of mine had a yearly practice of expensing a set of four season tickets for his local NFL team. Investigating further, I checked out the employee’s expense reports associated with each game and saw that each post-game dinner—again, for four people—exceeded $1,000 each. Further, I found out that the individuals attending each game included him, his wife and two supplier personnel. I wasn’t happy with this expenditure but was even more unhappy when I saw that for a few of the games, the supplier personnel were the same two people from the same supplier. I was really taken aback by what I considered a brazen act of bribing a supplier.
In talking to the employee, I found out that this supplier, in fact, did give us favorable terms—at least they said they did—in selling product to us. I told him that I would no longer allow this practice to continue—no more tickets to games or excessive cost dinners—and tasked him with getting the same terms with that same supplier without the “gifting.” Low-and-behold, he was able to!
Another example, this time from the seller side, was a large supplier that—on an annual basis—invited my CEO and his complete staff (including me) to a four-day pheasant shoot at their game farm, which was located halfway across the country. The deal was that on the first day, the supplier would fly our group down on their corporate jet. The second and third day involved hunting. The fourth day was the return trip, again on their corporate jet. And of course, over the first three days, they were “wined and “dined” (mostly “wined”—translate to bourbon, whiskey and brandy, including Cuban cigars, from what I heard) with the group coming back singing the praises of the supplier.
Of course, I declined participating in the trip, which drew some strange looks from my colleagues. Yet even though I hadn’t compromised myself with regard to this supplier, I was pretty much told by the CEO and a couple members of his management team that I didn’t need to consider other sources for the product they sold to us. Hmmm.
I’ll lay out one more example with a humorous slant. I was asked to conduct an audit of a potential supplier located in Georgia. For a variety of reasons, I rejected them as a supplier. After this, the salesman wrote a letter to my division president asking him why his purchasing department didn’t want to save money by buying his employer’s product. I was easily able to explain the reasons why, and the division president accepted them.
The “gift” part of the story was that later that year at Christmas, I received a “gift” from the salesman in question. His company was located near Vidalia, and he sent me a box full of Vidalia onions! I’m pretty sure he didn’t mean those onions as a “bribe.” They ended up at our local food pantry.
You may wonder why I detailed the above experiences. While many corporations have detailed guidelines about declining gifts in any form—such as tickets to sporting events—the answer is that U.S. companies aren’t “clean” when it comes to these questionable business practices.
I’ve also laid them out here as a basis for comparison for my next column, in which I will provide specific examples of what we’d consider immoral Chinese business practices, based on an interview I recently did with a business owner who has manufacturing facilities in both China and the United States.
Paul Ericksen’s book is Better Business: Breaking Down the Walls of the Purchasing Silo. Ericksen has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers.
