Business Ethics in Purchasing
We occasionally hear of bribery cases and unethical business conduct making front page news. However millions of companies are making deals and undertaking agreements every day. Some of these transactions are no doubt tainted by unfair or illegal dealings. Some countries are also more inclined to have unethical business dealings due to lack of enforcement institutions or historical culture. In the long run at both a corporate level and national level, unethical business dealings are detrimental. These practices cause businesses to acquire suboptimal talent or products and in turn cause them to offer their customers and their shareholders suboptimal performance. Purchasing is an area where companies should be specifically weary about unethical dealings.
Three areas within a corporation where purchasing ethics should be incorporated include:
1. Procurement Departments
To guarantee fairness and consistency in the purchasing process many companies have procurement departments that are assigned the task of purchasing key supplies for the company. Most of these departments are staffed with purchasing professionals that abide by strict methods, rules and processes put in place by the company. The issue comes in when routine interactions between prospective vendors and purchasing staff culminate into personal relationships and contacts. Once this happens professional purchasers will typically call vendors they are acquainted with giving them first priority because its much easier and faster for them. This is not always bad as relationships between companies and their suppliers take a while to develop and are founded upon personal associations. Even so, the purchasing professional is bound by duty to determine the best quality products or services at convenient costs and lead times for their respective employers. Purchasing standards should be set in order achieve optimal performance for the company despite the need for close relationships with prospective suppliers.
2. Sales Teams / Supplier’s Actions
We commonly assume that purchasing professionals will be as ethical as possible in normal situations. However the other side of the coin is sales departments that are interfacing with purchasing teams. Almost all companies have a sales team that is compensated on how much they sell. When monitoring unethical purchasing behavior companies should also cast a searchlight within their sales teams to ensure a code of ethics has been established and is being used across the sales force.
3. Non-Procurement Employees
In large companies many purchases are routed through the procurement department where strict standards are in place. However, these standards are not always in place for non-procurement employees that also occasionally make purchasing decisions. Smaller companies may lack a purchasing department altogether. Most companies allow some purchasing to go through department heads or lower level staff which circumvents the procurement department. Sometimes vendor sales staff specifically focus on these non-procurement staff as they are easier to sell to and not as aware of market conditions. It is therefore important to have purchasing standards in place for these non-procurement related staff as well. Overall corporate strategies can also be put in place which limit the purchasing ability of these non-professional procurement staff to a certain dollar level or requiring consultation with procurement staff on larger purchases. Such policies can help limit unethical behavior within these non-procurement employees.
Purchasing professionals are considered assets in all companies. They are able to save companies huge amounts of money and their skills are vital to ensuring the best product is purchased for the best price. However it is still important to have established ethical standards in place for these purchasing professionals and also other purchasing stakeholders such as sales departments and non-procurement related staff.
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