Chapter 16, Problem 1ED

Summary Introduction

Case summary:

Given that MM is a major customer, the company has to take a decision whether to comply with MM’s stipulation of converting from bar codes to RFID, for the labels on its products. Perhaps MM would have asked all the suppliers to changeover and also would have given a deadline when this changeover would be effective.

Not complying with MM’s stipulation, the company has to face the risk of losing a major customer. Given that RFID technologies are replacing bar code processes, perhaps all customers would sooner than later ask its suppliers to change over to RFID labels as it is a superior technology compared to bar code labels.

Therefore, the company has no option but to adopt RFID technology. The changeover would mean additional investment.

To determine: The ethical issues in the situations and the things should be done by the company.

Explanation of Solution

The company can consider the following:

• The company can suggest to MM to choose one prominent RFID technology vendor to carry out the conversion for all its suppliers, so that there are not only scale economies which would reduce the cost, but also ensure compatibility with the technological processes of MM.
• MM can co-ordinate the work with the vendor for the change-over process.
• MM can consider assisting (i) in part funding the additional investment (ii) agreeing to a higher price to make up for the additional investment, (iii) underwrite larger off-take volumes so that the additional cost gets spread out to larger volumes.
• The company can aggressively market its products to other customers, so that the production volumes increase significantly and thereby reducing the unit cost.

The ethical dilemma is for MM, as to whether they should invest to gain supplier loyalty or not. MM should obviously help its suppliers with the changeover in technology.