SMU Data and Models

Steel Buyers Basics: Ethics (Part 2) Reader Feedback

Written by John Packard

When Steel Market Update decided to do an article on steel business ethics we knew the subject would elicit an immediate response from a number of our readers – and it has.

What is making this process of writing a new series of articles on the subject of ethics interesting, is having another set of eyes looking at the content from a totally different perspective. Mario Briccetti’s experience is as an end user head of purchasing. My experience comes from both the mill and service center arena and mostly from a sales perspective. Now we are combining the experiences of our readers into the mix and, we hope, the result will be a dynamic dialogue within the steel community.

Mario was surprised at the response we got from the president of a flat rolled steel service center when he said, “Interesting subject but some of the bullet points you mention concerning ethics in the steel service center industry are so entrenched that they have morphed from a question of ethics to S. O. P. [standard operating procedure].” This executive continued with, “…my personal approach after spending 40 years in the service center business is ‘you treat people they way you would want to be treated.’ A very simple concept similar to your quote from Warren Buffet, but unfortunately easily overlooked in today’s business environment. I am a ‘glass half full’ person and I do believe people are basically good. I do think that today’s business environment puts people in situations where they must choose between ethics and a what’s good for me/us decision.”

What bullet points do the service centers consider “standard operating procedure,” Mario asked me after we had received the executive’s email. Good question and one we are not going to directly respond to as we need more (and differing) opinions on the subject.

Steel Market Update did receive comments from Arthur Franklin of Aaron & Company in New Jersey. Arthur pointed out a number of issues that he considered troubling. He wanted to make sure that we do not limit our discussion strictly to steel related issues as there can be ethical issues in many aspects of a company’s business:

Mr. Franklin told SMU, “Regarding Invoicing and Payment issues, it applies to ALL purchasing transactions, regardless of the product.  
“To what degree do you chose to be ‘honest’ about actual shipping errors or billing errors?  Do you tell your vendor about ALL errors or just the ones that will benefit you?   A purchaser will always report a billing error that overcharges quantity or price.  But an over shipment or under priced item will put dollars (sometimes significant) in your pocket.  Do you consider it the ‘right’ thing to do to tell your vendor to issue additional billing or just keep quiet and rationalize that their mistake is their mistake?
“Based on the times that I have asked vendors to issue additional billing where appropriate and the positive response that I get, it is my feeling that often these types of errors are not reported.  
“Another area of ethical behavior is when the purchaser damages material and knows that their people did it, do they try to go back and blame the supplier for the damages?  You know, ‘concealed damages’.
“Perhaps the biggest concern for those of us buying and selling galvanized steel is the misrepresentation of product that you mention in your article.  Coating weight verification takes an extra step and a special measuring device (only approximately accurate) or you must send a test sample to a lab.  Often sheets are sold with no stencil but ‘trust us’ to believe the coating.  And with coil processers doing their own stenciling there are opportunities for ‘misrepresentation’ sometimes explained as ‘errors’ when caught.  With margins so slim at times, the cost differential of various coatings can make a big difference whether or not you are successful making a sale against a competitor.”

Mr. Franklin and the president of the service center who commented above bring out a good point that must be considered when dealing with ethical issues – how do I compete in a market where my competition is unethical (my opinion). Second, is something unethical if the counter-party prefers to turn a blind eye to the issue?

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