Written by Marijn Overvest | Reviewed by Sjoed Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Ethical Procurement Practices — What You Need To Know?

Ethical procurement practices are an essential part of making sure that procurement within the organization is at its best quality.

Ethical procurement practices are practices within procurement that are kept up to stay within the bounds of the organization and society’s code of conduct. This is for the sake of morality and legality.

This article tackles what ethical procurement practices are, their importance, and their undeniable benefits. Written down below is everything you need to know.

I have created a free-to-download editable Sustainable Procurement Policy template. It’s a PowerPoint file, together with an Excel file, that can help you with your ethical procurement practices and goals. I even created a video where I’ll explain how you can use this template.

What are Ethical Procurement Practices?

Ethical procurement practices are a company’s code of conduct that serves as a moral compass to them concerning their social and environmental responsibilities. These practices make sure they never stray from the path of morality and legality.

Ethical procurement practices go into all the steps within the procurement process and even beyond this. From the hiring process to the actual process of procurement an ethical code must be followed to sustain business efficiency and reputation.

For example, monitoring suppliers with a proper supplier audit can make sure that your suppliers follow your supplier code of conduct. Ethical procurement practices make sure that an organization complies with the required commitments to social, environmental, and legal ethics.

The goal is to remove any form of unethical practice from procurement.

Some Unethical Procurement Practices are:

1. Accepting supplier favors and gifts

This is the most common type of unethical practice. Accepting any form of gift or favor might skew a buyer’s decision to properly evaluate a supplier and be unbiased in the selection of a supplier.

2. Conflict of interest

A conflict of interest happens when there is direct financial interest in the selection of a supplier whether by the buyer or by a close friend or family member of theirs.

3. Breach of Confidentiality

An organization holds a lot of protected information like pricing, personal customer information, or any business and trade secrets.

These types of information should be confidential and shared only when needed. The disclosing of this information in any way, shape, or form outside of a need-to-know basis is unethical and illegal.

4. Fair and unbiased treatment

All suppliers must be treated fairly and without bias. Any kind of preference or bias towards a supplier is unethical and should cease to be.

Now that we’ve tackled some of the unethical procurement practices here are the ethical practices that organizations should strive and aim for.

Some Ethical Procurement Practices are:

1. Sustainable Procurement

Sustainable Procurement, also known as green procurement, “is the practice of adopting environmental, social, and governmental factors while also considering the price and quality of materials that an organization will acquire.”

Simply put, it is how businesses can identify and reduce environmental and social impacts within their supply chain.

2. Control Methods to Promote Ethical Procurement

These methods are policies, supervision, and systems put in place to monitor the procurement process and rule out any unethical practices. However, the most powerful one may be procurement systems.

Procurement systems make sure that there is transparency by making sure every step of the procurement process is documented and also by making sure there is a proper separation of roles to track each member’s responsibilities.

3. Personal Standards

Values and beliefs are essential factors in making the mindset of a person. It is ultimately unrealistic to screen everything to the point that no unethical practices can bleed through but organizations can choose to work with people whose personal values reflect organizational values as well.

It is a tedious process but ultimately one that bears efficient results as people who work in organizations that reflect their values are more loyal and passionate in their work.

Why are Ethical Procurement Practices Important?

In this day and age, it is simply a requirement to be ethical. What does this mean? Being ethical means upholding the social responsibilities expected of you, and in the case of procurement, it means upholding ethical practices expected of the procurement process.

First of all, governments are stricter now with regards to ethical demands which means organizations who don’t follow these ethical demands will be fined or worse for infringing on the law.

Aside from this, the planet is dying and a big reason why is because human consumption takes a heavy toll on the environment. And the biggest players in human consumption are big corporations who often mine the resources of the planet extensively to run their businesses.

Because of this, the need for ethical procurement practices is needed more than ever before to save the planet from further deterioration. This is why ethical procurement practices are important.

Who Judges Whether Something is Ethical or Not?

When it comes to ethical procurement it starts with each individual because they are what make the team which in turn makes the company. Individual staff members make the judgment first which can be raised to senior members for validation.

For high-stakes decisions, this could be judged by the public, whether the consumers or just society in general.

Additionally, the legal system is always ready for judgment should the organization go too far in its unethical ways. Organizations can lose money and reputation if they are brought to court which is why organizations

What are the Principles of Ethical Procurement?

There are certain principles and strategies used for ethical procurement. These are ethical standards and they should include:

1. Independence

Ethical procurement practices require procurement professionals to make decisions independently, free from personal bias or external influence. The focus should be on the best interests of the organization or the public.

2. Acting only in the public interest

Procurement officials should prioritize the public interest above personal or organizational interests. This means making decisions that maximize value for taxpayers or stakeholders.

3. Being trustworthy of the public’s money

Those responsible for procurement should handle public funds with the utmost care and integrity, ensuring they are used efficiently, effectively, and transparently.

4. Following the law

Compliance with relevant laws and regulations is essential. Ethical procurement practices require strict adherence to legal requirements, which often include competitive bidding processes and anti-corruption measures.

5. Striving for market efficiency

Ethical procurement seeks to achieve market efficiency by fostering competition among vendors. This helps ensure that goods and services are procured at fair prices and that suppliers are chosen based on merit.

6. Taking nothing

Procurement professionals should not accept personal gifts, favors, or benefits from vendors or suppliers. This helps maintain objectivity and prevents conflicts of interest.

7. Not socializing with vendors

Maintaining a professional distance from vendors or suppliers is crucial to prevent undue influence or favoritism. Personal relationships should not compromise the integrity of the procurement process.

8. Maintaining confidentiality

Confidentiality is essential in procurement to protect sensitive information related to bids, contracts, and negotiations. Disclosing information improperly can undermine the fairness of the process.

9. Not playing favorites

Ethical procurement practices involve treating all vendors or suppliers fairly and equally, regardless of personal preferences or relationships. Decisions should be based on objective criteria.

What are the Methods to Promote Ethical Procurement?

It is never a guarantee to enforce anything on anyone, even if it is ethical, which is why the best companies can do is to promote it and have consequences for violating it. These can come in various forms but here are some examples of them.

1. Reviewing Guidelines

Guidelines should be accessible and simple to make it easier for readers. They should also have to cover all the major grounds of unethical procurement practices along with examples for engagement. It may also help to go over these guidelines with staff and even suppliers to make sure the guidelines are clear.

2. Making sure leaders know what to do

The leaders themselves should be able to tell the warning signs of unethical behavior and monitor everyone under their jurisdiction to make sure they are not going against the guidelines. Should anyone go against guidelines,  procurement leaders should be the first to do something about it.

3. Conduct surprise audits

Making sure to conduct surprise edits whenever possible discourages unethical practices for fear of being found out. This makes sure that everyone runs smoothly and intimidates anyone who may be having thoughts of practicing unethical ways.

4. Have discussions about ethics

Discussions about ethics should be present within procurement teams so that they will feel resolved in staying away from unethical practices. It is also an added benefit to leaders if they know the oral beliefs of their team as they can use this as an opportunity to spot red flags or find people more trustworthy than others with certain tasks.

What are the Benefits of Ethical Procurement Practices?

Ethical Procurement Practices are not only practices followed for legal and moral reasons. There are actual benefits to ethical procurement practices and here are some of them.

1. Employee Loyalty and Morale

82% of employees would prefer to work for an organization concerned with ethics than have higher pay which strengthens the organization’s policies, increases morale and engagement, and strengthens loyalty.

2. Brand Loyalty

Customers who see the transparency and firm ethical policies of a business are more likely to remain loyal to them and more likely to repeat purchases. Overall this gives the organization higher financial gain and customers for life.

3. Reduction of legal risks

By making sure ethical practices are upheld in procurement the supply chain is automatically more efficient as it lowers the risk of antagonizing authorities. Unethical practices can cause big fines or lawsuits that bleed companies dry.

4. Cost Savings

Ethical procurement can lead to cost savings in the long run. Fair and competitive procurement processes can result in better value for money, as suppliers are selected based on merit and price competitiveness.

5. Sustainable Practices

Ethical procurement often includes considerations for sustainability, such as environmentally friendly sourcing and fair labor practices. This contributes to a more sustainable and responsible supply chain.

What are the Challenges of Ethical Procurement?

Here are some challenges of ethical procurement that you may want to know about.

1. Nepotism

Nepotism is a form of favoritism where individuals in positions of power or authority show undue preference to their family members, often in matters of employment or career advancement.

This practice can create an unfair advantage for relatives, potentially leading to the hiring or promotion of less-qualified individuals based on personal relationships rather than merit.

2. Influence Peddling

This involves awarding contracts to a specific supplier in exchange for compensation, which can include special incentives or discounts.

To put it simply, endorsing the selection of a particular supplier for these motives is categorized as influence peddling.

3. Extortion

Extortion is the act of obtaining something, often money, through threats or coercion. It involves forcing someone to do something against their will using fear or intimidation.

4. Coercion and Intimidation

Coercion is the use of force or pressure to make someone do something against their will. Intimidation involves instilling fear in someone to manipulate their actions or decisions.

These tactics are often used to control or manipulate individuals and situations.

5. Bribery

Bribery is the act of offering, giving, receiving, or soliciting something of value to influence someone’s actions.

It often involves money or gifts in exchange for favors, decisions, or preferential treatment.

Ethical Practices of Companies

Here are samples of ethical practices by certain companies. These are good examples of ethics coming into play when it comes to running a business.

1. Patagonia

Patagonia altered its entire supply chain for the sake of ethical procurement. They did this by switching from pesticide-heavy cotton crops in 1994 to organically grown cotton to ensure the safety of their workers and to lessen the environmental impact of production.

Patagonia is a pioneering brand for sustainable fashion and has a strong reputation for being environmentally friendly and using ethical sourcing.

2. H&M

H&M has a goal of using only 100% recycled materials by the year 2030. Aside from this H&M is known for its upholding of supply chain transparency which shows their ways of supply chain management.

Every quarter they publish a list of their suppliers’ names and addresses on their website so that anyone can verify if they live up to the standards.

3. Adidas

Since Adidas had been found out in 2012 about work exploitation in Bangladesh they had been trying to repent and do better ever since.

Adidas employed a management-worker communication project to address poor working conditions. This allowed workers from their factories in Indonesia, Vietnam, and Cambodia to send an SMS text message to hotlines if they were treated unfairly in any way.

They also published on their website a list of their primary suppliers’ and subcontractors’ names and addresses including licensee factory names and addresses in support of freedom of association and signing the Bangladesh Fire & Safety Accord.

Conclusion

So in conclusion there are no downsides to Ethical Procurement Practices. It keeps the authorities happy, keeps the employees happy, keeps the customers happy, and on top of that it preserves the environment and slowly builds a better future for the next generations.

However, it is not without its challenges and requires constant vigilance from procurement leaders, employees, stakeholders, consumers, and everyone involved. It is a way to better the Earth and usually, ways to better the Earth always require collective effort, and ethical procurement is no exception.