“You’re Too Expensive” – The Ethics Of Lying To Suppliers

We wrote about Japanese auctions here and the ethics of not telling a supplier when their “bid” is the lowest, but instead allowing them to carry on reducing their price regardless.

That led on to thinking about honesty in our dealings and negotiations with suppliers. What is acceptable, what is not, and what is borderline?

As an example, let’s take a situation where some sort of sourcing process has been run and a supplier has come out as the “best” – they offer the lowest whole life cost and / or come out best across a number of weighted evaluation criteria maybe. But in any case, at this point, they are your preferred bidder.

In that sort of situation, how many of us have said things like this to suppliers:

  1. I really like your proposal – but I’m not sure the Board will go for it, it is still more than they expected to pay. Is there anything else you can do?
  2. We’re making a decision in the next few days. You’re in the running, but it’s a close-run thing. I’m just going back to the three best bidders to see if you want to put forward another best and final offer.
  3. Look, you know I’ve always liked working with you, but you didn’t quite come out on top this time. I’d need you to look at the price again if you want to win this. Can you do anything?
  4. You’re about 10% out. Your biggest competitor came in with a really competitive offer so unless you can move by at least that much then it’s not looking likely.

What do you think in terms of the ethics - and the efficacy - of those approaches?

Well, in our opinion, option 1 seems not unreasonable. You may really be taking it to the Board, which may genuinely feel like that, in which case it is 100% true. Even if you’re not going to the Board - well, it is a white lie, and you’re just asking the supplier if they can sweeten their offer.

Option 2 might be getting into dodgy territory from an honesty point of view – it depends just how close the bidding was. If there really wasn’t much in it, then OK, you haven’t told them they were the best bidder, but you aren’t lying. If they were actually 25% cheaper, then we’re into somewhat twisting the truth …

Option 3 is getting into lying, pure and simple. It may be an unspecific lie, but it is a lie.

And Option 4 is not just a lie, it is specific, and it may well be possible that a supplier will find that out. Sales people move from company to company – and (shock horror) people do talk.

My personal morals as a procurement practitioner were that I would go as far as I could – but I wouldn’t tell lies. I would hint and suggest that a supplier might need to do more, but I don’t think I ever just told an outright lie about the supplier’s situation.

I’ve seen an approach work well recently when a supplier was told – honestly – that their bid was more than the amount included in the budget. It was the best value bid, and I think they knew that, but they did move further when the budget issue was raised with them, in the spirit of “can we solve this problem together”? In that situation, some small easing of the specification helped take out some costs, although I’m pretty sure the supplier chipped in some margin as well.

In the case of the Japanese auction, and not telling the supplier they are bidding against themselves, it seems to me that it is right on the ethical borderline. As long as you explain to them how the process is going to work, you’re not lying to them, but some will argue neither are you giving them the full, honest picture. Maybe that will drive savings, but it might also lead to relationship issues if they find out later how they were treated.

These are interesting questions though, and one final point. In the world of increasing AI and machine learning, it will still be humans who decide what algorithms, processes and rules sit within these systems. There will still be many ways of running an auction or a bidding process.

 

Voices (2)

  1. Piyush:

    Sometimes the top management expects and wants purchasing to lie. And, for top management such lying, is actually a good thing.

  2. Trevor Black:

    If you are operating in a “dog eat dog” environment and see screwing your suppliers into the ground as a matter of course, then good luck to you. There is evidence of this squeezed out value mentality in many of the public sector and public service contracts on a daily basis. The best outcomes I have achieved were those where the suppliers were happy to go the extra mile and also provided value added criteria that was invaluable and outside the terms of the contract. The old adage that you get what you pay for still applies and screwing your suppliers into the ground at every opportunity only helps to eliminate competition which in the long term is not a sensible strategy.

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