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Ethical issues in Procurement & Supply Chain Management

ethical issues in procurement

Ethical issues in Procurement & Supply Chain Management

Most business owners value ethics, integrity, and a good reputation because they want to have a positive impact on the community while retaining loyal clients and stakeholders over the long term. For you and your staff to be proud of the company’s image and reputation, management ethics are essential. You can feel good about using your finished goods or services to benefit the community when you’re satisfied with how and where your raw materials are sourced.

It can be simple to assume that you are giving your customers the finest service when you take delight in developing sound business processes, but part of giving the best service is about assuring ethics in purchasing and supplies. At each point in your supply chain, ethical issues can arise and can include things like:

  1. Human trafficking: Force, deceit, or other forms of coercion are used in human trafficking to obtain labour or commercial sexual activities. The two are frequently entangled. Human trafficking perhaps poses the most pernicious threat to a company’s supply chain because it directly affects between 21 and 45 million people worldwide. This enormous number understates the impact that the exploitation of their loved ones through forced labour, bonded labour, sex trafficking, domestic slavery, child labour, or forced marriage has on their innumerable family members, friends, and communities.

Demand for more goods and services at ever-lower rates fuels human trafficking. If you are a business owner and you want to offer ethical products and services, you may need to choose suppliers and sources that are more expensive merely because they are more ethical. Whatever your sector, learning more about regions in your supply chain that can be affected by human trafficking will help you more effectively use ethical purchasing and supply practices.

  1. Unfair labour practices: Businesses occasionally violate minimal ethical norms by paying employees the lowest legal salaries possible or by neglecting to address unsafe working conditions that bear minimal compliance with the letter of the law.
  2. Environmental issues: Some businesses or industries wreak environmental havoc and raise issues with water toxicity, toxic waste, deforestation, and other environmental issues.
  3. Extortion: This involves obtaining goods, services, or money by the use of bribes or threats.

Example: A vendor you recently awarded a contract to sends you a thank-you gift, such as tickets to a sporting event or a small-denomination gift card to your favourite coffee shop. Since it’s a thank-you present, you accept it because it had no bearing on your choice.

Takeaway: Accepting gifts, especially ones with minor monetary values, is fraught with moral dilemmas. True, the fact that this was your first time working with this vendor had no bearing on your choice. But how do you guarantee you won’t be swayed by their kind gift if you decide to utilize them again? Others in the field will think you might have been affected. In either case, if you serve as your company’s purchasing agent, your reputation will be tarnished for taking presents.

  1. Coercion: When people use force or threats to persuade others to act or behave in a certain way, this is known as coercion.
  2. Favouritism: When people opt to work with relatives or friends even when they are not the most competent, ethical, or provide the best value, favouritism is at play.

Example: What damage would it do to have lunch with a potential vendor to go over specifics since everyone needs to eat?

Takeaway: First, you could become overly cordial to the point where you desire to work with this vendor even though his terms and prices aren’t the best. Because of how pleasant he is, you are likely to believe him when he says that the delivery terms are too good to be true. Second, unless you’re having lunch with every vendor who comes up to you, you’re practising favouritism.

Naturally, you want to foster positive interactions with your suppliers and possible business partners. Even seemingly innocent behaviours, though, can represent unethical procurement practices.

  1. Unfair Advantage: Say a potential supplier offers you inventory that your business utilizes frequently at rock-bottom costs. In return, you commit to notify them in advance when more goods will be put out for bids.

It might appear that this situation is harmless because you still intend to give other vendors an opportunity to submit bids and you intend to treat all of the submissions fairly. However, by providing a vendor with advance notice, you are giving them an unfair advantage since they will have more time to prepare their offer and will be able to submit it before other suppliers. If they had been given less time, their bid might have changed; conversely, it might not. However, favouring one vendor above the others in any way is unfair.

Every time you make a procurement choice, one thing to consider is whether or not it will help your business. Gifts are for you, not the business. Even if the donation were intended for the business, its poor reputation causes more harm than good.

Ensuring High Ethics in Procurement

There are actions you may take as a business owner or procurement manager to ensure that your organization upholds ethics in procurement.

  • Clearly state the company’s code of conduct and include provisions related to the procurement division.
  • Provide examples of both ethical and unethical behaviour to all purchasing staff members. This is the perfect location for role-playing as a merchant or purchasing agent.
  • Inform staff members that management will examine purchase agreements and conduct surprise audits. To ensure that everyone understands and abides by the company’s perspective on ethical problems in purchasing, be sure to follow through with both.
  • Always act and make judgments with integrity.
  • Stay committed to your line of work.
  • Steer clear of products made unethically.
  • Opt for ethical Substitutes.

As a consumer, you have a lot of purchasing power, and what you buy affects not only you but also everyone involved in making the products you buy. You can decide to buy mostly ethical or fair trade companies as an alternative to supporting other types of human trafficking.

  • Create Strong Ethical Standards.

Creating an ethical vision for your company and selecting ethical management principles are two ways to address potential ethical difficulties with suppliers. Include anyone with purchasing authority in this process, and combine your minds and souls to produce a tangible result.

  • Initiatives for corporate social responsibility (CSR)

Making a corporate social responsibility (CSR) project is a crucial step in making sure your firm is improving society and developing an image as a company that cares.

Inspire your change by looking at other companies. Your company might support programs and services that aid victims of human trafficking, or you could get your hands dirty by volunteering your time to make a real impact. This can help establish your company’s reputation for moral supply management and buying, as well as gain you favour with customers.

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