Ethical Issues in Procurement Management

If you are fortunate enough to have multiple suppliers vying for your business, inviting you out to expensive lunches and showing their thanks with gifts, beware. Seemingly friendly gestures such as these can cross the line of ethics in procurement by influencing your purchasing decisions. Even if you aren't influenced, just the appearance of impropriety can hurt your own and the company's reputation.

Ethical Issues in Purchasing

The Institute for Supply Management has adopted three principles for purchasing managers and employees to remember in their work:

  1. Maintain integrity in your decisions and actions.
  2. Always strive for the best value for your employer.
  3. Remain loyal to your profession.

From these principles, ISM devised standards for purchasing professionals to follow to make sure they are maintaining high ethics in procurement. These standards include acting properly with suppliers and not allowing your decisions to be influenced by suppliers. Another standard is refraining from entering into agreements that guarantee a reciprocal arrangement or one that could conflict with the interests of your employer.

Examples of Unethical Behavior

Of course, you want to promote good relationships with your suppliers and potential vendors. However, even seemingly harmless actions can serve as examples of unethical behavior in procurement.

Example: Everyone has to eat, so what's the harm in lunching with a potential vendor to discuss specifics?

First, you could become too friendly, to the point that you want to do business with this vendor even if his pricing and terms aren't the most favorable. He's so nice that you're inclined to take him at his word when he describes delivery terms that seem too good to be true. Second, unless you're lunching with every single vendor who approaches you, you're showing favoritism.

Example: A potential vendor offers you rock-bottom prices on inventory your company uses regularly. In exchange, you agree to give them prior notice when other supplies are going to be out for bids.

It may seem like this situation is harmless because you'll still be giving other vendors the chance to bid and you plan to consider all the offers fairly. But, by giving one vendor advance notification, you're giving them the unfair advantage of having more time to prepare their bid and to get their bid to you before other vendors. Maybe it will change what their bid would have been if given less time; maybe it won't. But it isn't fair to give one vendor an advantage of any kind over the others.

Example: A vendor to whom you recently awarded a contract sent a thank-you gift of your favorite brandy, tickets to a sports game or a small-denomination coffee shop gift card. Since it's a thank-you gift, it didn't influence your decision, so you accept it.

There are numerous ethical issues with accepting gifts, even those with small dollar values. True, it didn't influence your decision if this is the first time you've used this vendor. But if you choose to use them again, how do you know you're not being influenced by their thoughtful gift? It will appear to others in the industry that you may have been influenced. Either way, you'll become known for accepting gifts, which taints your reputation and that of your company since you are their purchasing agent.

One question to ask yourself in all your procurement decisions is: Does this action benefit my company? Gifts benefit you, not your company. Even if the gift were for the company, it hurts rather than helps by giving the company a bad reputation.

Ensuring High Ethics in Procurement

If you're a company owner or procurement manager, there are steps you can take to make sure your company is maintaining ethics in procurement.

  1. Spell out the company's code of ethics with specifics for the procurement department. 
  2. Train all purchasing employees on these ethics, giving examples of ethical and unethical actions. This is an ideal place for role-playing vendor and purchasing agent actions.
  3. Let employees know that management will review procurement contracts, and unannounced audits will be done as well. Be sure to follow through with both, so the company's position on the ethical issues in purchasing are understood and followed by everyone.

References

About the Author

Barbara Bean-Mellinger is a freelance writer who lives in the Washington, D.C. area. She has written on business topics for afkinsider.com, smallbusiness.chron.com, Harbor Style Magazine, the Charlotte Sun and more. Barbara holds a B.S. from the University of Pittsburgh and has won numerous awards in B2B and B2C marketing.