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Is it unethical to play suppliers against each other to get the lowest bid possible?
Q. Recently a customer obtained a price quote, only to return a few days afterwards asking me to revise my quote to beat an even lower quote from a competitor. Is that ethical? How should I respond?
A. This game of playing suppliers off against each other is hardly new. The most famous exponent of this practice in recent generations was Jose Ignacio Lopez, purchasing czar for General Motors in the early 1990's. Lopez was famous -- or perhaps infamous -- for his multiple-round bidding process. GM would invite bids from a number of contractors, and then initiate further rounds of bidding on the basis of the lowest bids extant. Even after the bidding was done, Lopez would pressure suppliers for additional cost savings!
What were the results? On the down side, Lopez's policies alienated many long-term suppliers to GM, leading some to stop working with the company and others to adopt a more formal, arms-length relationship with the company in place of the previous cooperative relationship. On the other hand, he saved GE the astronomical sum of four billion dollars in only a year. Much of the saving resulted from actual improvements in production efficiency, rather than merely squeezing suppliers to GE's advantage.
Playing suppliers against each other in this way is not inherently unethical, but it does present many ethical challenges. Here are a few:
Beyond the ethical considerations, there are also many practical considerations. GM did attain short-term cost savings, but there were also long-term costs due to alienation of suppliers. In GM's case cost savings were so huge that they probably gained in the long term, but this won't be the case for any firm which adopts this confrontational attitude.
Suppliers can take their own steps to protect themselves against this phenomenon. Many sellers take care to inform buyers that quotes should be considered final. A consistent policy can help forestall pressure from determined negotiators, even if it results in the loss of a few sales. It is worth pointing out that many suppliers themselves ultimately benefited from GM's pressure, as they ended up with remarkable productivity improvements and cost savings.
There's nothing wrong with being a tenacious negotiator and trying to obtain the best price from sellers. But buyers need to remember that their business is ultimately dependent on having a reliable relationship with suppliers, and take care to always deal with good faith and an eye to mutually beneficial long-term relationships.
SOURCES: (1) Mishnah Bava Metzia 4:10. (2) Shulchan Arukh Choshen Mishpat 228. (3) Shulchan Arukh Choshen Mishpat 204.
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