GB519: Measurement and Decision Making
Discussion Scenario Details
Scenario for the Unit 4 Discussion:
Unit 4 Scenario
The vice president (V.P.) of distribution for a major wholesaler rushed into the chief financial officer’s (CFO’s) office because for four straight weeks they have filed significantly higher claims against the company’s freight carriers for products damaged in shipment. The carriers complained about several specific issues: 1) The company has filed over $150,000 in claims this year to replace damaged goods; 2) some of the freight carrier’s claim the wholesaler is their worst customer; and 3) they are a significant shipping customer, but they have the highest claims level.
The CFO says that the shipping manager claimed that the new shipping containers (boxes) he just purchased were a significant improvement. He had to get special permission to enter into a long-term contract with the box manufacturer so that they would provide them with the cartons at a reduced price. The shipping manager prepared a proposal demonstrating expected increased income based on the cost savings per carton. The long-term contract was accepted because he emphasized the need to maintain the quality that their customers have come to expect but would improve profitability at the same time. Based on the proposal, the claims should have been reduced.
The V.P. found the shipping manager the next morning. The V.P. explained the significant problems related to the damage claims and asked the shipping manager about the new shipping containers. The V.P. wanted to know directly from the manager if there might be a correlation.
The manager expressed surprise and mentioned that his performance evaluations have dramatically improved after entering into the long-term contract. Much of the improvement is because of the significant increase in the company’s contribution margin. But what he did not tell the V.P. was that the crush weight standards (strength) of the new cartons did not meet company standards. He had decided to reduce cost by using a sub-standard carton.
The V.P. remained unsatisfied and told the shipping manager that he was determined to research the problem to understand the root cause. The freight companies are dissatisfied and have threatened to quit paying the company’s claims. The V.P. of sales is very concerned because customers are exasperated due to the claims process. The company’s customers want their products delivered free of damage, the first time.
The V.P. of distribution told the shipping manager that he would personally inspect the cartons and discuss it with the shipping dock personnel.
The cost savings were the pivotal element for the shipping manager’s improved annual performance evaluations. This was of particular financial importance for the manager due to an impending promotion and raise.
The reduced cost per cartons was directly the result of the shipping manager’s relationship (his uncle) to the sales manager at the carton manufacturing company. The shipping manager had also signed the long-term contract so that his uncle would achieve a sizeable year-end bonus for exceeding his sales targets. Part of the bonus was a week-long trip for two to the Super Bowl. The uncle had invited the shipping manager, his nephew, to go with him.
The following week, the V.P. called the shipping manager and said:
“I’ve been talking with our loading dock personnel and we have discovered that the cartons on the bottom of the pallet suffer the most damage. It turns out that the crush weight of the new cartons is sub-standard. We’ve filed all those damage claims against our carriers, but the damage was not their fault at all. You will need to go back to purchasing the appropriate cartons.”
GB519: Measurement and Decision Making
Unit 4 Scenario
The shipping manager stated, “We can’t do that for the next 15 months; we’re locked into a long-term contract.”
Checklist:
● What are some of the ethical issues in this situation? What are some possible steps that the company could take to resolve this managerial problem?
● Discuss some of the costs and benefits to the company for making an ethical decision. Be sure to use critical thinking and support your analysis with independent sources.
Post to the Discussion per your Syllabus guidelines.
Disclaimer: This exercise may include actual companies and brand names solely for instructional purposes; this exercise is not associated with any such actual company or brand name. All trademarks remain the property of their respective owners.]
