Ethics in Sourcing and Procurement Management
Conducting business ethically means that company stakeholders act appropriately and fairly. When considering ethics in procurement management, stakeholders must act with impartiality and be transparent in all business dealings. Practicing high ethical standards may be a challenging road, but it’s the right road, as taking shortcuts or acting unethically undoubtedly leads to trouble—whether it hurts the company financially, affects its reputation, or, worst-case scenario, gets the company or an individual in legal trouble. Fortunately, eSourcing software now has features and benefits to promote transparency and collaboration while mitigating risk to ethical standards.
Read on to learn more about procurement management and ethics, how to spot unethical behavior, and how your eSourcing software can help you pave the way to an ethical and risk-free sourcing and procurement process.
Principles of Ethics in Procurement Management
So, what exactly are ethics in procurement management? The Chartered Institute of Procurement & Supply has noted several standards of qualification for ethics of procurement certification with their organization, and are also ideal tools for measuring whether ethical standards are being met in practice. They are:
- Compliance. This includes following local, state, and federal laws, refusing bribes or “gifts,” and fulfilling contractual obligations to the letter. Without compliance, there can be no trust. It establishes a transparent and trustworthy relationship based on mutual expectations.
- Integrity. This relates directly to several ideals everyone should follow. You never breach confidentiality in business dealings or participate in corrupt practices for financial gain. You strive for fair and transparent competition, are honest about skills and qualifications, and ensure all work is accurate and not misleading.
- Proficiency. Always aspire to reach the highest procurement management standards and the supply chain. You should work hard to improve the organization constantly. This includes knowing how to improve, what the latest eSourcing technology can do to help, and how it can ultimately benefit the company. Seek new ways to do business, and continually refine your knowledge and skills to achieve your goals.
- Protection. Your role as a procurement manager is to protect the interests of your company at all times; therefore, you must safeguard it from anything that could damage it in any way. As someone responsible for making business decisions, you want to protect your organization as you’re making them. This means steering clear of unethical practices in procurement, such as giving a certain supplier preferential treatment over others.
Examples of Unethical Practices in Procurement Management
You may be following the highest standards of ethical sourcing, but that doesn’t mean everyone around you is, including your suppliers. It can be difficult to spot immoral conduct in supply chain management, particularly when they are disguised as “harmless” gifts. Some examples are listed below:
- Coercion. Being coerced is when someone attempts to force you to decide what you may lose. For example, forcing someone into making a purchase they may be unable to afford or putting pressure on suppliers to accept a lower-priced offer. It’s a fear tactic but not quite as forceful as extortion.
- Extortion. Extortion is asking for a bribe or payment under duress. It is different from coercion in that instead of someone trying to twist your arm, they are threatening harm if you do not comply.
- Bribery. Bribery is giving money or favors to receive favorable treatment from another party. It is illegal in most countries and often practiced as a method of gaining business advantages or avoiding regulations.
- Favoritism. Favoritism is treating people differently based on their status or association with certain people. In procurement, it’s usually preferential treatment to a supplier or other individual over others. It can present itself as nepotism, where one gives better treatment to friends and family, or as traffic of influence, where preferential treatment is given in exchange for a favor.
- Illegal sourcing. Illegal sourcing refers to sourcing items that may have been produced immorally or illegally. An example would be sourcing from a country where child labor is involved. This also applies to sustainability. Items made from endangered or culturally-significant resources should not be sourced from countries where the resources are in abundant supply.
CSR (Corporate Social Responsibility) has always been the core of a strong ethics policy. Still, it’s more important now than ever to have an ethical supply chain that clears unethical behavior regarding sustainability and environmental impact.
For example, your procurement process with a supplier may be eco-friendly, but it’s also important to do your research to ensure your supplier’s place in the supply chain is also clean. This includes making sure potential goods and services are sustainable and that the entire transaction is transparent.
If your vendor(s) are engaging in practices that are unethical and affect the supply chain overall, this can easily derail your supply chain and tarnish your company’s reputation, even if your company isn’t the one directly participating in the unethical behavior.
How to Spot Unethical Activities
Some unethical procurement activities may be tougher to spot than others—don’t get yourself caught in a lapse of ethical practices because you didn’t see it coming. Here are a few red flags to look out for:
- Tokens of appreciation. Gifts aren’t inherently bad—they can be a powerful way to cement a business partnership or strengthen relationships with important stakeholders. But gifts can also be a tactic used to gain an advantage in business deals by giving someone something that’s otherwise unavailable to them. Make it a hard and fast rule not to accept gifts from vendors and suppliers.
- “Too good to be true” pricing. Most vendors don’t sell products at a loss to win over customers—but if someone you know offers you a product at a huge discount, it’s worth investigating further to make sure you’re not being taken advantage of.
- Conflicts of interest. Sometimes people do business with companies to avoid paying taxes or have a conflict of interest that prevents them from considering a company’s best interest. If your vendor has personal connections with a competitor of yours or if their parent company owns another company that might pose a conflict of interest, it’s worth looking into their background.
- Missing information. Your procurement department should know everything that’s going on with orders and deliveries—if you can’t be sure of this, it could be a sign that there’s illegal behavior happening behind the scenes.
Remember, any compromise to your integrity should be deemed unethical and can negatively affect procurement management and the overall supply chain. Make sure your team knows how to spot and avoid unethical practices to keep your company’s good reputation intact.
How eSourcing Software Can Help
A new generation of procurement software is helping businesses monitor and prevent unethical behavior in the supply chain. These tools can help you eliminate conflict-of-interest situations and reduce paperwork by automating processes and allowing stakeholders to access data anytime, anywhere.
For example, an effective and ethical supplier selection process can help you select the best vendors for your business needs without lowering your ethical standards. An automated solution can help you identify potential red flags early in the relationship before they become a problem. Cloud-based software solutions give you the freedom to access your data from anywhere at any time on any device, allowing you to collaborate more effectively with internal teams, suppliers, and customers while improving productivity and efficiency.
Not only does the best eSourcing software eliminate manual processes, increase efficiency and prevent human errors, but you will also be able to eliminate corrupt practices from your supply chain.
To learn more about eSourcing software that can help you avoid the pitfalls of unethical dealings in procurement management, speak to a Simfoni representative today about conducting a demo.