The Hertz Boys Charlie Wilson, purchasing director for Jay Manufacturing Company

Question

The Hertz Boys

Charlie Wilson, purchasing director for Jay Manufacturing Company, had to make a decision that would tax the judgment of a Solomon. Charlie had found that Paul Hertz, Jay’s top buyer, was purchasing components from New Technology, Inc., a firm of which his brother was vice president and chief of research and development.

Jay had never had a conflict of interest problem before, since the company bought most of its metals, plastics, and chemicals from giants of the industry or other widely held companies. Wilson was surprised that there was any family connection between one of his buyers and a supplier, but then he had not figured that such a relationship could enter the picture on Jay Manufacturing Company contracts. At a recent monthly dinner for purchasing and sales managers, Paul had introduced Wilson to his brother, Harold. "Charlie, this is my brother

Harold, the gee-whiz type of the family. He's the brains behind the control switch we're putting in the ncw 'Bluejay' line. Harold developed it for us right on our kitchen table over coffee after I told him what our problems were. It’s great being able to tap a local outfit for research and development help. This development has saved us a good 35 percent a year on that product and given us a real jump on the competition!"

The product Paul Hertz had brought in had really met a definite need and added another cost cutting laurel to Paul's already impressive record in value analysis and all-around good purchasing know-how. But Wilson began to have qualms about the situation, even though Paul's performance on the contract-and on all others-was above reproach.

He discussed the problem in conference with several fellow company executives.

Kingsby Blackstone, company attorney: “This is a serious case, Charlie. That buyer has entered a conspiracy to defraud this company by routing orders to his brother’s outfit. He probably owns a good chunk of New Technology stock besides. We should fire him and take quick action to recover damages. You have to prohibit buyers from having any interests in supplier firms."

Roger Goodbody, manufacturing manager. "You're making a mountain out of a molehill! I grew up with he Hertz brothers and they are solid citizens;. We’re darn lucky to have one of them working for this firm. Besides, only Paul Hertz could have gotten that genius interested in our problem. It's a darn good thing when our buyers can get that close to a supplier."

Charlie Wilson: "If it were anybody else but Paul, I'd be suspicious of his intentions. But I am sure he has acted in the best interest of the company, even though the situation does look a bit fishy. If we unfairly crack down on him, it will look as if we are punishing initiative. Also, if we kick up a fuss over the situation, aren't we trying to close the barn door after the horse has been stolen? I'll check into the situation a bit further and talk it over with you next week.”

Do you believe that there is an ethical problem with the relationship of buyer and seller between Paul and Harold Hertz? If you believe there is, explain what the problem is and why it is an ethical problem. If you believe there is not a problem, explain why not

What should Charlie do about Paul and this situation

Explanation / Answer

The analysis of the case throws light on the fact that Paul Hertz was indeed a good buyer. He had good purchasing know-how and was responsible for a lot of cost saving for Jay.

On the other hand, Paul was purchasing a lot from New Technology Inc. in which his brother Harold was VP and Chief of R&D.

It is of pertinence to note here an ethical problem would exist if the product New Tech is selling is not the ‘best suited’ for Jay’s requirements. If the procurement process was free and fair, and if adequate and genuine quotes were evaluated before purchasing from New Tech, I do not see an ethical challenge here.

This approach is not the best one though. It has been decided after evaluating Charlie’s thoughts on Paul and his track record in the company. Jay, as an organization, holds Paul in his regards due the pointers mentioned in the first paragraph of this write-up. Therefore, it becomes crucial to analyze the actual decision making process before jumping to conclusions.

As stated, this process is not the best one. For all future buyer-supplier relationship, there should be a thorough check on conflicts of interest. It might be a time consuming exercise but might end up saving a lot of money for the company.

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