Ethics in Purchasing Materials and Services

Although people like to think that the people who determine contracts and purchasing agreements are fair and ethical, there are some that will accept coercion that may affect the award of contracts that are worth thousands of dollars to those that are worth millions of dollars. Unethical practices can take many forms. From blatant lying to not disclosing necessary information to business counterparts.

The media often report cases of bribery and unethical business practices that involve the purchasing of materials or services in almost every country in the world. As an example, the Dhaka Tribune reported a case where a European buyer claimed bankruptcy, only to buy a larger stake in its own company stock. The buyer then demanded manufacturers in Bangladesh ship the previously ordered product at a price that was greatly lower than the originally agreed-upon price. Manufacturers had to accept or lose the sell and face substantial losses.

Ethical Purchasing Standards

Every company will hold their employees to a purchasing standard that is put in place with processes, methods, and rules to ensure that the procurement process is as fair as possible.

However, the purchasing of materials and services is a process that involves the interaction of purchasing staff and potential vendors, which leads to personal relationships and contacts.

A purchasing professional will naturally call a vendor they have personal knowledge of before they cold call other potential suppliers. The relationship between a business and its suppliers is one that is developed over a period and based on personal relationships.

However, the purchasing professional is duty-bound to their employer to ascertain the best product or service at the best cost, in the timeliest fashion. Purchasing standards are in place to ensure that the needs of the company are foremost in any negotiations with potential suppliers.

The first ethical standards for purchasing professionals were published by the Association of Purchasing Management in 1929.

Actions of Suppliers

Although we expect purchasing professionals to be as ethical as humanly possible, most companies have a sales department whose job is to sell your product, and that can mean having contact with employees of potential clients, which could be purchasing or non-purchasing staff.

These sales teams will have budgets to promote products with advertising souvenirs, such as pens, calendars, diaries, etc., or more tangible gifts such as lunches.

In some studies on purchasing it has been found that almost all purchasing professionals accept something from vendors, even if it as small as an item of stationery.

Although the majority of companies will require purchasing and non-purchasing employees to sign and abide by an ethics policy, smaller companies are less likely to either have or indeed abide by a code of ethics. Small business failure is high, and it is vital for companies to win business, and that can come at the expense of ethics.

Non-Purchasing Employees

Large companies insist on purchasing professionals and adhere to ethics codes, the same is not necessarily true for non-purchasing staff. In many companies purchasing is allowed by department heads or even line staff which by-passes the purchasing department altogether.

This means suppliers sales departments can target non-purchasing staff to gain sales where perhaps they have been rejected by the purchasing department. The purchasing department never sees much of this rogue procurement as it either is paid for a department’s cost center or checks cut by the accounting department.

Rogue purchasing has two major drawbacks for a company. Firstly the spending is never funneled through the purchasing department, so there is no way to know if the purchaser obtained the best price for the item. Secondly, the purchaser may have been unduly influenced to make the purchase; perhaps by gifts, personal relationship or even a conflict of interest.

Rogue purchases can make up as much fifty percent of a company’s overall spending for a year. If non-purchasing employees are restricted to minor or even zero purchasing, the company would be confident that the purchases were made ethically and the best product was selected based on price, quality and delivery time.

Summary

Purchasing professionals are an asset to any company. They can save a company thousands if not millions of dollars a year. The way in which they purchase items is vital to the success of a company, and a strict code of ethics ensures that all potential vendors are treated equally.