Unethical Procurement

UNETHICAL PROCUREMENT PRACTICES: A CASE STUDY OF AGROCHEMICAL DISTRIBUTOR X

Table of Contents

* Introduction

* Facts of the case

* Conclusion

Introduction

Company X is an agrochemical distributor in the Western Cape. The company consists out of 50 agents, who are the owners and shareholders of the company. The company was formed to give the 50 individual agents a better negotiation and procurement function by adding all the agent’s volumes together when negotiating with a supplier.

The head office consists of 15 personnel who are responsible for the company’s finances, logistics and procurement. These services are done at a minimal cost to the agents. An agent pays cost price plus 3,5% on the cost price for a product, for example: Product A costs R100/lt. The agent will pay R103.63/lt. The 3,5% covers all head office running costs and are strictly managed by the top management. The agent adds his profit to the farmer on top of this.

The mission of the company is to provide the 50 agents with the best innovative and quality product range to suit all the farmer’s (end users) needs at competitive prices for all crops in the Western Cape. In the marketing agreement the agent signs with Company X there are certain rules he/she has to adhere to. One of the most important rules are that an agent will not buy products directly from a supplier which he can buy from Company X and thus pay 3,5% less for the product. Unfortunately Agent Y broke this rule and was investigated for unethical procurement of goods. Here follows the facts of this case.

Facts of the case

In the middle of winter apple and pear farmers spray mineral oil on their trees to take them out of their dormancy stage. Large quantities of mineral oils are sold by various distributors which are sourced from two suppliers in South Africa. Competition between the distributors are fierce when it comes to a commodity product like mineral oil, forcing profit margins down, mainly due to the...