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Sunday, August 31, 2014

Time to Put Purchasing Ethics Back on Management’s Agenda

ISM-ADR has an assessment program to help companies identify gaps in skill sets. This information helps determine an organization’s training and development needs. In the past year, our survey results are quite alarming. Ethics are increasingly becoming a key skill-set gap, both in domestic and global surveys. When reporting and discussing results of the gap analysis with our clients’ senior corporate management, ethics rises to the top of the CEO’s list of concerns.

At one client, a procurement team assessment, stakeholder feedback, and other evidence revealed that a key purchasing leader had extremely close supplier relationships that included numerous golf outings. When we informed the CEO, his response was, “Don’t you think he should be more discrete?”

Credit: Stuart Miles at FreeDigitalPhotos.net

Credit: Stuart Miles at FreeDigitalPhotos.net

In another instance, our consulting team found Procurement, R&D, Engineering, and Operations personnel enjoying frequent hunting and fishing excursions with key suppliers. These suppliers were entrenched for over 20 years. We recommended that management implement a zero-tolerance policy on trips and gifts. Management, under pressure from key stakeholders, decided upon a $250 supplier gift limit (to allow rounds of golf) but never actually implemented the policy.

A strategic sourcing team was invited to a supplier luncheon, and when their boss left, each was given a $50 gift card by the supplier. During an ethics discussion in a training course, one individual from that team had a dilemma. He didn’t spend his gift card, but others in his department did. If he reported the incident, his colleagues would be implicated. We told him consistently, “Always do the right thing.”

One director fell short of business performance metrics, so he and his team didn’t get a bonus. So a supplier stepped up and paid them all money equivalent to the bonus. Needless to say, he and much of the team were immediately fired when the company found out.

We were asked by an automotive company to do an integrity audit. We found violations in two of the four facilities. In one, a senior manager insisted on handling all supplier negotiations, which happened to include a trove of goodies. At the second location, a senior buyer attended golf outings masked as supplier visits. He never visited the supplier facilities, even though his trip reports and expense accounts stated he did.

We have seen purchasing agents share privileged information with favorite suppliers, including confidential competitor pricing.  When we discuss ethics in our workshops, many are unaware that these are unfair and unprofessional practices.

RELATED: IMT Procurement Journal – Bill Michels interview at ISM

The last story involves one of our consultants. While working at a previous employer on a purchasing assignment, he was handed $10,000 in traveler’s checks by an agricultural products supplier in India. The supplier was removed from the office and the bribe rejected. Thankfully this purchasing professional worked in a zero-tolerance environment, which fully supported his honesty.

There are more and more of these incidents occurring, and we need to understand why — but, more important, we need to remove temptation and ensure these activities are eliminated.

The rise of questionable ethics may be partly driven by the financial crisis that began in 2007-2008. As the global economy tanked, companies became increasingly desperate to maintain and grow their business. This could be a reason why purchasing now receives more intense gifting efforts aimed at creating implied obligations.

In our assessment surveys, ethical behavior climbs higher on the management agenda, especially with overseas sourcing, where bribery, sharing confidential information, and other ethics transgressions seem more common and may even be considered acceptable business practices in some locations.

What do you do? A plan is needed and action steps are essential:

  • Have a clearly defined ethics policy and make sure every one knows and understands the penalty for a breach.
  • Send a letter to all suppliers at least once a year, stating the corporate ethics and gift policy. Emphasize that gifts are not allowed and will be returned. Make sure the letter is signed by the senior purchasing executive.
  • Hold informal meetings with purchasing staff and remind everyone about the gift policy.

Remember, if it doesn’t feel right, don’t do it! Your integrity is priceless, and it follows you in your personal life and business career. A golf game, a small gift, or entertainment is not worth your job, integrity, and freedom (if you’ve broken the law).

Please understand, the world isn’t ending — we just want to call attention to the increasing incidence of ethics violations. Take a few moments to reinforce your policy, talk about it openly, and consider conducting an audit to assure that your company is maintaining high ethical purchasing standards.

 

Bill Michels, CPSM, C.P.M., MCIPS is president of ADR North America LLC, a specialty-consulting firm that focuses on purchasing and supply chain management. Michels is also a senior vice president of the Institute for Supply Management. His ability to transform procurement and supply chain and deliver a change process has led clients to increased profitability, enhanced staff competence, and sustainable cost and value improvements. 

George Cantrell had a successful purchasing and commodities hedging career at The Procter & Gamble Company spanning 30 years. In his current role as a purchasing consultant, George continues to motivate people to embrace change management — aggressively streamlining work processes and identifying ways to improve value in buying decisions that lead to competitive advantage. 

This article was originally published at My Purchasing Center and has been republished with permission. For more stories, visit MyPurchasingCenter.com.

 

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