Backround Info

The design vice president's staff originally proposed two alternative materials for phone cases that are packaged and sold with certain high-end phones manufactured by Phone and Build: real leather (pig skin) and faux leather made from a synthetic material (polyurethane). Both cases were very similar in appearance, although the real leather case was a little heavier than the faux leather case. Both cases could be sourced from an established supplier in China, with whom the design VP had a long-term relationship. The marketing VP evaluated the cost of the two cases from this Chinese supplier, and decided that he would go with the faux leather case because it was available at a 20 percent lower cost in comparison to the real leather case.

An initial order of 500,000 faux leather cases was placed with the Chinese supplier and within about a month, the shipment of cases arrived at Phone and Build's South African facility, where the phones were assembled and packaged for sale all over the world. When the newly delivered cases were inspected by Phone and Build's product team in South Africa, they discovered that more than two-thirds of the cases were actually made of real leather. After Phone and Build's VP of manufacturing contacted the Chinese supplier to complain about the cases being "out of spec," he was told that it was not an error—the supplier was aware of the fact that over 300,000 cases in the shipment were made out of real leather. After some persistent questioning, the supplier revealed that as a result of an order cancellation from another customer, they had suddenly found themselves overstocked with an inventory of pig leather. Rather than let this extra inventory go to waste, the Chinese supplier decided to use up that inventory towards fulfilling a major part of Phone and Build's order!

The Chinese supplier was not willing to apologize for their decision to ship over 300,000 real leather cases to Phone and Build without first obtaining approval for the switch. In fact, the supplier did not feel that Phone and Build had any grounds to complain because the supplier was willing to accept the lower payment as per Phone and Build's original order of faux leather cases. Instead of insisting that the supplier take back the 300,000 or so cases that were out of spec, the manufacturing VP accepted the entire shipment and then conveyed this news to the Marketing VP in an internal company memo.

Upon receiving the memo, the Marketing VP realized it was too late for the real leather cases to be returned to the supplier in China, and he would have to make the best of out of an undesirable situation. He made a decision that the faux leather cases would be packaged for phones shipped to Europe and North America, given that they were lighter in weight. The real leather cases would be used for phones packaged and sold in Africa and Asia. Previous marketing surveys conducted by Phone and Build had revealed that consumers in the West preferred lighter phone cases, while consumers in Africa and Asia equated heavier cases with better quality and longer life. Of course, the Marketing VP conveniently forgot that the advertising materials and product inserts for the phone had already been printed in multiple languages and all of this product literature stated that the phone case was made of synthetic material.

The phone cases were shipped to retail outlets, and within a couple of weeks, the marketing VP had a potential crisis on his hands. Tech writers and product reviewers from two well-known South African and Kenyan newspapers had called and e-mailed to inquire about what they rightly suspected was a pig leather case and not the synthetic material that was specified in Phone and Build's product literature. They informed the marketing VP that if they revealed the truth about the origins of the case material in their reviews, it would have a tremendously negative impact on Phone and Build's sales in Africa and Asia, where a significant number of consumers practiced the Muslim and Hindu religions. They wanted to know how the company was going to resolve this issue before they went to press.

The marketing VP contacted the manufacturing and design VPs to find out what they should do to get the company out of this potential crisis. After a lot of finger pointing and talking past each other, the three individuals arranged a conference call with Belinda Lee and brought her up to date. Belinda Lee promised the three VPs that she would let them know how she planned to resolve the matter in the next couple of days.

Question:

1) Was the Chinese supplier ethical in shipping more than 300,000 cases made of real leather instead of the requested faux leather material, even though the supplier was not charging Phone and Build anything extra for the higher cost of real leather? Explain why or why not.

2) The decision of the manufacturing VP to accept the shipment containing real leather cases without first consulting the marketing VP is also somewhat problematic. By the time the marketing VP received the memo, it was too late for the cases to be returned. If you were the marketing VP and received the same memo, would you do anything different? Why?(What specific actions he could have pursued differently)

3) All the senior personnel at Phone and Build should have been well aware that a significant proportion of their African and Asian customers were very sensitive about using phone cases made of pig leather. As an organization, what strategic errors did you observe in the decision making by various individuals in this situation? By the design VP? By the manufacturing VP? By the marketing VP? Could more training in ethical decision making and cultural sensitivity for senior management have helped in this situation? Why or why not? (What did each of the VPs do (or not do) in this instance? Ms. Lee needs to know specifics so that she can target their ongoing development and adjust processes where necessary.)