Unethical Sourcing Practices in Procurement and How to Avoid Them
In procurement, unethical practices can be hard to spot. Say you took a gift or a low price from a vendor, neither of which seemed unethical at the time. Yet these things, along with other seemingly inoffensive actions, may be considered unethical.
It’s critical to understand what makes up ethical vs. unethical practices within your procurement function. A perceived lack of ethics may affect your reputation and the entire procurement process and supply chain.
For example, employees at Smith & Wesson entered into a series of unethical practices with foreign countries between 2007 and 2010. Bribery may seem like the easiest unethical practice to avoid, but it still occurs, particularly when trying to save money. Sales teams at Smith & Wesson were trying to win contracts for firearms supplies in foreign countries, including Indonesia and Pakistan, using third parties to try to cover their tracks. To win those contracts, the employees were offered gifts and awards in the amount of $11,000.
In the end, the bribery only saved Smith & Wesson $100,000, however, the company paid over $2 million in fines, the reputation of the company was forever tainted, and the entire international sales team was terminated.
As you can see, one false move can be incredibly costly. Every company wants to save money, but the right sourcing software can help you manage spend and save money the right way.
Smith & Wesson isn’t the only company with a scandal—the British luxury clothing company Marks & Spencer was caught using child labor in third-world countries for their clothing lines. Also, in 2016, Nike’s ties with Georgetown University were affected when reports of extremely poor working conditions were reported from a Nike factory in Ho Chi Minh, Vietnam. Nike’s connections with poor working conditions and child labor forever tainted their reputation.
Read on to learn more about how unethical practices can be avoided, how to spot unethical suppliers, examples of lack of ethics, and unethical procurement practices.
Unethical Procurement Practices: Examples of Unethical Behavior
Unethical behavior isn’t always clear initially, particularly when you are on friendly terms with suppliers or others. Some examples of the more obvious (e.g., illegal and immoral) practices include:
- Bribery. This can include a cash payment or gift. It can happen during contract negotiation and should be rejected and reported immediately.
- Extortion and coercion. Extortion involves asking for an outright bribe or gift from a supplier or buyer, which can often be accompanied by a threat. Coercion can occur when someone is trying to “strong-arm” you in some way to be awarded the contract.
- Illegal sourcing. One example is substituting cheaper materials for those of higher quality, or sourcing from countries where working conditions are very poor for workers.
- Favoritism. Giving preference to friends or family over others (also known as nepotism).
These are some of the most obvious unethical procurement practices, but there are others, such as traffic of influence (a term for not treating all suppliers equally, such as awarding a contract for preferential treatment).
Unethical Procurement Practices: Signs of Unethical Suppliers
You may see red flags with suppliers before you do business with them, which shouldn’t be ignored.
Poor procurement ethics include much more than obvious illegal activities, such as bribery in the Smith & Wesson case. Before doing business with a supplier, watch out for any signs of unethical procurement practices. Some more subtle things you may want to keep an eye on include:
- If you’re offered a price significantly lower than any other supplier, it’s the best practice to take a closer look. This is usually an attempt to undercut other suppliers. Not only is that unethical, but you’ll also likely end up with materials you’re unsatisfied with.
- A supplier’s documentation may look questionable or is completely absent. Either they’re disorganized, which means you likely don’t want to do business with them, or they have something to hide. Your supplier should be able to provide you with proper financial and security information.
- Instead of outright bribes, perhaps you’re sometimes offered tokens of appreciation or gifts. These are just bribes in a prettier package—don’t do business with this supplier. This risks the reputation of your company.
- Environmental impact is also important. If your potential supplier is dealing illegally with foreign countries (such as with Smith & Wesson) or sourcing from areas with hazardous or working conditions, or are exploiting child labor, such as Marks & Spencer, avoid it.
Although at the time they may not seem too serious, all of the above is unethical. A not-so-obvious lack of ethical practices can be just as damaging as the more apparent ones.
Unethical Procurement Practices: How to Avoid Unethical Procurement
With ethics of procurement management it’s important to ensure your side of the street is clean and that you know how to avoid unethical practices. In general, keep promises, tell the truth, and be transparent in your transactions.
eSourcing software helps with transparency and collaboration and fosters a healthy supplier relationship.
The bribery from Smith & Wesson came in the interest of trying to save money, which is something everyone wants. However, instead of taking the low road, the company could have utilized eSourcing software with spend analytics capabilities and saved money the “right” way.
It’s also important to be cautious with international business dealings with companies in countries such as Indonesia. While there is technically a government agency to fight corruption, bribery is still an everyday occurrence. eSourcing software can give you access to supplier management to avoid potentially unethical companies.
Falling for unethical business practices can affect sourcing and procurement. It can also affect your entire organization and supply chain while publicly smearing your company’s reputation.
It can be tempting to want to do something unethical, such as breaking a contract because it’s not serving you well financially or accepting an expensive gift, but these things only lead to trouble.
Having the right eSourcing software can help you avoid unethical procurement practices. How? Intuitive and easy-to-use software helps level the playing field, removes unconscious bias from the equation, and keeps your team and suppliers on the same page.
To learn more about intuitive, easy-to-use sourcing tools that can help your dodge unethical procurement practices, speak to a Simfoni representative today about conducting a demo.