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Examples of Unethical Supply Chain Behavior

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Jennifer Edmonds, PhD

on 10 January 2017

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Transcript of Examples of Unethical Supply Chain Behavior

CS Business System Inc. paid the United States $65,000 to settle claims concerning the delivery of nonconforming flash memory cards to the Naval Air Weapons Center in China
The Naval Criminal Investigative Service investigated the matter.
ollowing an investigation, the United States alleged CS Business’s conduct violated the False Claims Act and the Buy American Act. CS Business admitted to one violation each of the Acts and agreed to pay $65,000 to settle the violations.
Dave Oberrender
think about the activities involved in PLANNING the Supply Chain...
This blog engages a discussion of sending jobs overseas (to take advantage of low labor costs) at the height of rising unemployment rates in the US.
There is a lot of discussion on this topic, but very little agreement. I actually agree that outsourcing can be good for some companies...but when millions of jobs are lost and sent overseas, greed seems to be the motivating factor. When corporate greed is the motivator, and not increasing output value in some way, an ethical battle ensues.
Dr. Edmonds
A local dentist (in Tulsa, OK) was recently reported to have numerous health and safety violations, including nonsterilized and rusty instruments.
He was forced to close his practice and over 7,000 of his former patients need to be tested for Hepatitis and HIV.
Dr. Edmonds
MAKE is defined as production of goods or performance of a service.
managing and coordination relationships with suppliers
RETURNS can also include activities pertaining to the processing of complaints (not just the ability to return merchandise)
$3.4 Million in fines payable to the State Attorney General’s Office

Incurrence of all legal fees

22.5 Million in other fines paid to townships where the violations were discovered

All costs associated with the cleanup of hazardous materials they put in garbage landfills
Chemicals returned by customers that were found defective were tossed in garbage cans, trucked to landfills and poured down drains

Dumpster’s were found outside a California Target store containing the toxic and flammable mixture of bleach and ammonia

Formally charged with Improper storage, transportation and disposal of bleach, pesticides, batteries and other hazardous materials
Michael Shannon
Could lead the termination of the company followed by lawsuits from people who have become sick from it. Also lawsuits by farmers for selling them things that they were not informed about properly.
Monsanto is a company that provides chemically modified products to farmers to increase their animals and crop production. Recently they have found that the chemical that they have been giving the cows could lead to cancer in humans due to a lack of testing before it was put on the market.
Jon Slack
Casey Harding
Samantha Fowler
CEO of Apple, Tim Cook:
Released memo to all employees
Detailing the provisions they’d be taking to make amends
Know that customers expect more out of the company
Manufacturing plant in Shenzhen, China
Estimated 5% under age of 16 workers
Working 12 hour shifts
No over time for 14-16 hour shifts
Subject to hexane (cleaning agent)
After India’s market liberalization, Indian farmers started buying genetically modified cotton seeds from Monsato corporation. The seeds were able to resist and kill the common cotton pest.
However, the seeds are very expensive & farmers had to seek money lenders for hefty loans that turn into unmanageable debt. To date, almost 300,000 farmers have committed suicide because of this economic hopelessness.
There have been no repercussions for Monsato, but these suicides bring up wider questions about the ethics of the fashion industry as a whole, in that cotton is used in the clothes worn by people around the world.
Da Beers the largest diamond producing company in the world, may have received diamonds that are called "Blood Diamonds." Blood diamonds are diamonds that come from rebel group controlled mines in Africa. The funds received help fiance the rebel army. The funds have created several wars in African countries. The workers of the mines are usually held captive by the rebels, and have been mutilated or even killed.
Da Beers did not receive a punishment for producing these diamonds, but now there are laws to help combat the use of blood diamonds. The Kimberly Process Certificate Scheme was made to help end the sale of blood diamonds. If anything Da Beers received a hit to its reputation.
danny judge
Recognizing Return Fraud
. Dramatic increase in number of returns
. Return policy not being enforced
. Increasing number of markdowns due to returns
“Wardrobing.” People who just want to use the items for special occasions – a graduation, Christmas party or wedding.
Types Of Return Fraud
. Return of stolen merchandise
. Return of merchandise purchased with fraudulent or counterfeit tender
. Return of used merchandise
. The return of merchandise using counterfeit receipts
After a customer found out her yoga pants from LuLuLemon were sheer, she went to return them and was asked by an employee to prove they were sheer by bending over. The CEO even said it was the only way to tell if the pants were sheer. The company has received several complaints about this procedure. The company actually had a recall later on these yoga pants because they indeed were sheer. A customer should not have to prove that the product is faulty by putting them on and demonstrating.

As a repercussion for both the faulty items and the above poor customer service, the head of products was asked to resign, RBC capital markets has cut its rating on the company, losing 20 million in sales, and overall giving the company a bad image.
Consumer Return Fraud Terrence Ives
In 2007, Mattel outsourced to China to cut costs but found itself recalling nearly 2 million toys due to the toys being covered in lead paint. The company was able to prevent many of the toys from going to stores, but over 300,000 toys were bought by consumers and this was a major safety issue.
Mattel was fined 2.3 million for the lead-paint violation. Parents were scared to buy these types of products for their children. Due to outsourcing, Mattel's name was tainted.
Ford rushed the Pinto into production even through test engineers had discovered potential danger of ruptured fuel tanks during test crashes. This is an example of poor ethical behavior because Ford knew of the potential dangers, yet they continued to make the product anyway. They justified their production with cost-benefit analysis, stating that it would be cheaper for them to pay off lawsuit stemming from driver injury than it would be to make the repair.
The repercussions of the company’s unethical activities caused more than two dozen deaths/injuries before the vehicle was recalled. For a while, this caused Ford’s reputation to suffer immensely.
Erin Donnelly
The challenging employment situation in the United States is complicated further by the illegal use of workers from other countries. Laws are in place to ensure that companies abide by the rules while employing individuals from other countries, but companies continue to be ethically challenged and violate the laws. Many industries are impacted by this issue, but the problem is especially prevalent in the farming industry with the use of Mexican workers to harvest U.S. crops. This particular issue of undocumented workers causes concern for the security of our country and in addition many times it is found that the treatment of the illegal aliens is less than desirable.

Ann Sadusky
Plan Phase – Eurofresh, Inc. the largest U.S. manufacturer of greenhouse tomatoes located in Arizona, knowingly hired and employed 17 supervisors from 2000 to 2006 that were illegal aliens. The company, although they came forward with the violations and fired their HR Director, settled the violations with the U.S. Department of Immigration and Customs Enforcement and agreed in August of 2011 to pay a fine of $600,000. The H.R. Director faces criminal charges for the violations.
Trafigura had become involved in processing large amounts of unrefined fuel that resulted in tons of hazardous waste off the coast of the Cote d'Ivoire. However when they were told that the price of safe transportation would be increased they took the waste and proceeded to dump it without treatment.
Monsanto Co. is rated the top unethical company in the world. They are an agricultural company, which produces a genetically modified foods. They unethical making of their food is what made them the top unethical company in the world. It been known how genetically modified food have a negative consequences on the health.
Ibraheem Alfuaim
Their unethical behavior resulted in a health crisis that affected more than 100,00 people with symptoms such as breathing difficulties, nausea, stinging eyes and burning skin.
They have yet to be prosecuted for their illegal dumping. This gross negligence has brought to light the need for the strengthening of national and international regulations regarding the dumping of toxic waste.
Kaitlin Chase
Enron was one of America's largest energy companies who made large profits by concealing debts so they didn't appear in their financial statements.
Nike has been outsourcing their products for a long time. They have been doing this to help reduce all of their costs that are involved with the making of their products. Some groups have been going after Nike because of the conditions that their workers were working in. the people in the groups believed that Nike treated their employees unfairly. Because of this Nike has to deal with bad press and prove that their working conditions were not poor in the countries they operated in. they also have implemented teams to make sure that the quality of the work condition is appropriate as well as a code of conduct in 1992.

Angelina Genelow
As a result, Enron went bankrupt
and the Sarbanes-Oxley Act was passed.
Also, the SEC made changes to their regulations.
Emily Weary
Chevron is listed as the Archive Fire top 12 unethical multinational corporations. They are an oil producing company they ways in which they dig out the oil cause environmental infractions.
The company also has other unethical acts such as tax evasions and they are known for their history of committing abuses.
Evana Manandhar
The example I found was a Coal Distributor in the Harrisburg area that formed a very profitable coal company in the 1970's. However, the reason that he was able to become so profitable was because he was delivering inferior coal to customers than the coal that they were expecting. It his highly unethical and illegal to deliberately deliver inferior goods to customers than the goods they are expecting.
The repercussions of this can be legal actions taken against the company, like the ones taken against the company in this article as the behavior can be considered a type of fraud. The practice will also decrease consumer confidence and hurt the company in the long-run as it is not a sustainable business practice to give customers inferior goods than what they have ordered.
David Kratzer
After realizing suppliers and sub contractors were using child labor in India, Primark ceased business with these suppliers. Primark did not want to be associated with the very current and major ethical issue involving child labor throughout the world.

Had Primark continued to use child labor, even after discovering the issue, they company would likely suffer massively, as Nike did, due to lack of customer support for unethical behavior.

Luckily for Primark, the issue was recognized and taken care of quickly enough for a major issue to arise and set a higher ethical standard for other companies to follow in the future.
Deanna Moore
Ongelique McGuire
AT the time military marine Julio Arreola
Was assinged to & working for an
Enginnering company I Marine Expeditionary Forces Headquarters Group (I MHG). It was his responsibilty to oversee deliveries for the company & it became known that he obtained quotes from differnet contractors and after he got approval to work with these contractors, he solicited bribes from Davut Construction and Services Company for example & would recommend the department of defense to use their services in exchange for cash payments.
Arreola was charged for the bribes & is due for sentencing on May 13. A maximum of 15 years in jail or a $250,000 fine. & 3 years of supervised release.
Theresa Rule
Retrieved from: http://www.detroitnews.com/article/20130219/POLITICS02/302190401
A woman is saying she was sexually harassed by two trainers at LA Fitness
The trainers made inappropriate comments and made her very uncomfortable
She made numerous complaints and no one would listen to her
She requested a refund of her money and was not given it
The case has not been settled yet but LA Fitness will probably have to pay a fine and will probably lose some business from this.
Woman Sues LA Fitness and 2 Trainers Over Alleged Harassment
Reform of returned fraudulent containers is starting to take place in Michigan since refunding cans not purchased in the state they are being returned in is having a impact on the state's business.
Rob Houseknecht
Wal-Mart had unethical behavior because of not knowing that the product was switched with a blank disc. They should of known by seeing the same customer coming back in less than an hour to return the game to get their money back. Should of noticed with the new type of wrapping put back on the game.
This will affect their business in a couple different ways. With Wal-Mart taking back the games and putting them back on the shelf it will cause other customers who always shop their to get frustrated. The loyal customers may start to shop at another store if they buy a game and get home to find out its just a blank disc.
Hidden Return Policies!
Best buy has some not-so-obvious return policies on certain items that charge consumers a 15% restocking fee.

The consequences of Ford actions is demonstrating to their employees that is fine to bend the law
Going through customs can be very annoying and expensive. Especially when you are prominent corporation. So to get past those obstacles Ford decided to make the Transit connect look like a car, in order to by past additional charges.
This is unethical because, Ford were lying to customs to bring their vehicles in cheaper.
GAP Inc. was found using Indian child sweatshop labor to maximize their profits

Children were starving & dirty, forced to work 16 hour days

Greatly hurt brand image which previously was clean-cut, high quality clothing retailer

GAP Inc. Sweatshop Scandal
The problem here is not that Best Buy has done anything super unethical, but they are being real shady and not informing consumers on all of their policies. I believe that a company should make consumers aware of all policies, giving customers the advantage of being informed. Technically Best Buy does have their policies on the back of the receipts, but who reads the back of a receipt? The outrageous policies include a 15% restocking fee on certain items, and a policy that corporate must refund amounts over $200. The repercussions, according to this article, are that people are going to avoid purchasing big-ticket items at Best Buy for fear that Best Buy will rip them off if they are unsatisfied with the item. The company image will suffer because of this behavior; customers don't deal with shady businesses.
Jeremy Wiest


This is poor ethical practice, because it is first false advertisement and secondly, it seems like a product that Aloe Vera Company knew would not get by the FDA so they specifically chose to call it a medicine/drug. With sneaking intentions like this we can only wonder what other unethical things Aloe Vera Company might be getting in to.

The consequence for such actions was not bad at all. Since this was caught early and possibly Aloe Vera first offense, the FDA decided to issue a warning letter to the CEO and President of the Aloe Vera Company.
Calvin Santiago
Throughout the 1990's Nike was heavily criticized for their numerous sweatshops in South Korea and Taiwan. The working conditions were beyond sub-par and dangerous to its workers. They had the workers working for over 14 hours straight. The reason for this was the cheap labor Nike was receiving which was wrong. There was even reported physical and verbal abuse.

In 2010, an Adidas supplier stopped making compensation payments to workers. A few months after the incident began, the owner fled the country without paying 2,800 works almost $3.3 million dollars. This has been a common occurrence with Adidas supply chain partners and not once has Adidas paid the employees what was owed to them. The main problem with Adidas is that the partnerships they form are not monitored to uphold Adidas standards. A reason for this is that any changes can lead to higher cost for the production of their products. There have not been any legal sanctions or punishments towards Adidas. The only penalty they have had to deal with is related to college students. Adidas provides many of the athletic wear for college sport teams and after a lot of pressure from activist student groups, Cornell University and Oberlin choose to end their contracts with Adidas.

Brandon Kuhar
Jake Jardel
Nike is said to have around
24.1 billion in revenue every year.
Nike now has anti-sweatshop campaigns and fights child labor after activists made these incidents public. the still suffer from a stained reputation.
Nike has be accused of having used sweatshops that force workers to work more than 60
hours a week and are punished when they do not work overtime. There are also
claims of verbal and physical abuse. Asian sweatshops is a way to reduce the cost of
production. Nike is still a very expensive brand even though their production cost is low.
Nike Sweatshops
Abercrombie and Fitch Sweatshops
A&F clothing retailers were part of a 22 million dollar settlement for operating sweatshops in Saipan
Earned a place on the International Rights' Forum Hall of Shame
Accused of using child labor, and forcing employees to work 12-24 work days.
Faced boycotts and damaged reputation but didn't report significant loss of sales
Heartland Gourmet
Justin Psaila
In 2011, a safety investigation found multiple
fire hazards in a plant that produces clothing for
WalMart. No corrections were made, and in 2012,
the plant caught fire and killed 112 people.

Jesse Logsdon
Heartland Gourmet has recalled its
Heartland Gourmet has recalled its dairy
free milk because after testing there have
been traces of milk in the product.

This was unethical in making because this
product which was intentionally made
for children who are allergic to gluten
are now at risk of consuming it

Luckily there was a recall on the product
and so the company has corrected its initial
In 2007 Mattel recalled toys for the 17th time in the last ten years. The recall was because lead paint was used in the manufacturing process of 83 different children's toys made in China.

Mattel settled a civil suit from this recall and paid a $2.3 million fine.
Mattel Lead Paint Recall
Pam Grosner
Walt Disney Company
Samsung is being accused of using unethical procedures in their companies in South Korea. They won’t release information regarding their industrial processes affecting their workers. This is a concern for South Korea’s people’s health.
This is an ongoing process and is not solved yet.
DJ Shuttleworth
Kuehne & Nagel, a cargo transport company, has been proven to have been involved with fixed pricing along with other frieght forwarding companies. This violates the Sherman Anti-Trust Act, and they are now forced to pay $28million to end the settlement.


Katie Cocchi
Theresa Roman
Ignoring Customer Feedback and Complaints
Rob Swetts
Netflix split up its streaming and DVD rental service in 2011, increasing the users monthly rate by about 40%. This company change resulted in a large drop (~800,000) of subscribers and reduced profits.
Poor ethical decision as customer rates were increased without explanation - even after the CEO issued a statement apologizing and explaining for the increase, many felt it was too little too late
1 - http://articles.businessinsider.com/2012-01-19/strategy/30641945_1_customer-service-negatives-complaints
2 - http://www.mercurynews.com/business/ci_18930845
Theresa Roman
CompUSA return policy is a company that distributes computer appliances and hardware materials. This company has very high strict return policies as mentioned in the text itself where they need the original receipt with addition of conditions applied of the item to be the original piece and they require the UPS codes.
Saeed AL Mansouri
Trafigura is a multinational company trading in base metals and energy, including oil. A ship leased by the company, entered a port in Amsterdam and the company that had been contracted to take the waste raised their price to process the waste 20-fold soon after determining the waste was more toxic than previously understood. Trafigura decided to have the ship take back the waste and have it processed en route to different offloading sites,which illegally dumped the waste instead of processing it. Many people there became sick due to exposure to the waste, and investigations were begun to determine whether it was intentionally dumped by Trafigura

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