John Bentley is the chief financial officer for World Auto Parts Corporation. The company buys approximately $500 million of auto parts each year from small suppliers all over the world and resells them to auto repair shops in the United States. Most of the suppliers have cash discount terms of 2/10, n/30. John has instructed his personnel to pay invoices on the 30th day after the invoice date but to take the 2% discount even though they are not entitled to do so. Whenever a supplier complains, John instructs his purchasing agent to find another supplier who will go along with this practice. When some of his own employees questioned the practice, John responded as follows:
This practice really does no harm. These small suppliers are much better off to go along and have our business than to not go along and lose it. For most of them, we are their largest customer. Besides, if they are willing to sell to others at a 2% discount, why should they not be willing to sell to us at that same discount even though we pay a little later? The benefit to our company is very significant. Last year our profits were $100 million. A total of $10 million of the profits was attributable to this practice. Do you really want me to change this practice and give up $10 million of our profits?
Based on the ethics case related to World Auto Parts Corporation, respond in writing to the following questions:
a. Do you agree that the total impact of this practice could be as much as $10 million? Explain.
b. Are the small suppliers probably better off going along with the practice?
c. Is this practice ethical?