Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Procurement Ethics — Everything You Need To Know
Key takeaways
- Procurement ethics cover principles and practices that ensure fair, honest, and sustainable sourcing throughout an organization’s purchasing activities.
- Ethical procurement isn’t a choice but a responsibility for sustainable futures.
- Mitigate risks with clear communication, supplier vetting, and continuous monitoring for ethical procurement success.
Most business owners must maintain ethical practices. Failing to do so leads to customer dissatisfaction. It also neglects societal standards.
Knowing procurement ethics goes beyond making deals. They encompass fairness and transparency. It also promotes social responsibility.
This article provides learnings about procurement ethics. It highlights the significance and its to-do list. It also provides tips on avoiding unethical practices.
This list builds on theory and examples from my time as a procurement manager. There’s one during Ahold Delhaize and another at Royal Friesland Campina.
Before you continue reading this article, I have created a free-to-download editable Sustainable Procurement Strategy template. It’s a PowerPoint file that can help you with your sustainability initiatives. I even created a video where I’ll explain how you can use this template.
What isProcurement Ethics?
Procurement ethics are the set of values, behaviors, and rules. These govern you and your suppliers during the entire procurement process.
Ethical practices ensure that all parties involved in purchasing decisions act with integrity.
Moreover, it matches transparency and fairness. It is crucial to uphold legal requirements and achieve ideal moral standards.
Importance of Procurement Ethics
Ethical procurement practices are more than compliance with laws and regulations. They also emphasize values such as transparency and responsible sourcing. Thus, you must understand how critical it is to implement these practices. In that way, you can achieve optimal business success. Let’s discuss a few points to describe how important procurement ethics is.
Procurement ethics nurture trust among consumers, investors, employees, and partners.
Continuing ethical procurement practice considerations enhance company credibility. Also, your stakeholders can boost trust and loyalty. Having these practices can help cultivate strong, lasting relationships. Be it with suppliers or partners. It builds mutual respect, fair treatment, and reliability.
Adhering to procurement ethics minimizes legal concerns. Moreover, it safeguards companies from penalties and reputational damage. It can also help avoid litigation cases. It supports you to build a strong brand image known to peers and customers.
You can also set a distinction for your company. You differentiate your business as socially responsible. This trait appeals to customers who deeply value transparency and fairness.
Lastly, you can use your resources better. Ethical procurement processes extend beyond profit. It’s a process encompassing responsible use of resources. It also aligns your business with sustainable practices.
10 Situational Examples of Procurement Ethics
You may be wondering how exactly procurement ethics can manifest itself in real-life situations. If you are, here are 10 situational examples for you.
1. Transparency
You are open and honest when sharing relevant information with suppliers. This process starts by being open and honest. Do not hide or withhold information from your suppliers and vice versa.
2. Lack of Conflict of Interest
You avoid situations where your interests may interfere with procurement decisions. This procurement ethic example maintains objectivity.
Be it in making decisions and upholding principles. It includes the likes of fairness and transparency in your procurement processes.
3. Fair Competition
Treat your suppliers equally. Create contracts based on fair criteria and merit. This should be done regardless of your suppliers’ reputation, size, or notable previous experiences. Do not discriminate or unfairly treat them.
Moreover, check and select them based on their qualifications and performance. Include their capabilities and alignment with your needs. More importantly, criteria must be made for supplier selection and evaluation.
4. Payment Terms
You ensure timely and favorable payment to suppliers. You must also make payments that are helpful to both parties.
This process means that your negotiating terms must benefit both parties. This process ensures that you continue business operations with fixed incentives. Thus, this also maintains positive and efficient relationships with your suppliers.
I recommend paying your suppliers within 30 days. Especially, the small and medium-sized suppliers.
5. Social Responsibility
You choose suppliers who align their operations with ethical labor and environmental standards.
Choose partners and suppliers who adhere to ethical labor standards. This selection is crucial for establishing actions directed to society and the environment.
6. Quality over Cost
You focus on quality and long-term benefits over the lowest price possible. Although, some may see its difficulty. However, it’s vital to recognize the value of providing the best quality products.
This provision will benefit you more than monetary revenue. Adhering to this ethical standard maintains your company’s image and reputation.
7. Supplier Diversity
You promote inclusivity by engaging with diverse suppliers. It’s better to involve and get raw materials from different suppliers. Be it locally and globally.
Moreover, other than helping you mitigate supplier risks, this also nurtures inclusivity. It defines your position among customers and competitors.
8. Data Security
You secure confidential supplier information and trade secrets. This is a crucial procurement ethic to adhere to.
It’s because you must keep sensitive information secured and free from breach risks. Moreover, this builds your company image and rapport with suppliers and customers.
9. Contract Fulfillment
You hold accountability as much as your suppliers do. You must fulfill contractual obligations effectively. It is imperative to hold and maintain adherence to contractual terms on your end.
Thus, hold yourself accountable for potential mishaps. Take the necessary responsibility to resolve and understand these scenarios.
10. Continuous Improvement
Your frequent review and improved practice to achieve ethical compliance. This procurement ethical standard impacts both operation and supplier reputation. Thus, it generates influence and attention in the business industry.
10 Situational Examples of Unethical Practices
If you need examples of unethical practices here are 10 of them that we’ve listed down for you not to do.
1. Bribery and Kickbacks
You either offer or accept money or favors. You do it to influence supplier selection or contract awards.
This is where corruption starts. It will tarnish your company’s image, especially since it involves bribery just to get what you need.
2. Conflict of Interest
You focus on suppliers based on personal biases rather than fair evaluations. Choosing unclear and subjective-based criteria to select your suppliers can reduce credibility.
It can also bring in questions about your credibility as a buyer or even as a company. It is unprofessional and unethical.
3. Supplier Favoritism
You grant contracts to friends or family without considering competitive alternatives. If you’re in the business industry, it cannot be escaped.
You also have friends and relatives in the field as well. Considering peers or relatives instead of performance research will be debilitating. It might compromise your competitive edge.
4. Misrepresentation
You give false information about requirements to gain advantages. This is a common unethical practice.
It especially happens in conjuring up contract negotiations and other legal documents. It’s unethical to tweak contracts to attract benefits and have too much freedom.
5. Price Fixing
You collaborate with suppliers in scheming to set prices artificially. This process eliminates healthy competition.
It becomes unfair when you do not align with economic market status and trends. This unfairness disrupts the market movement and trading for customers.
6. Duplicate Invoice
You submit multiple invoices for the same products or services. You do this to inflate costs and commit fraud. This is where corruption starts.
Even if it’s doubling invoices for little costs, it is unethical. Never manipulate office supplies expenses. Do not consider adding numbers to the original prices of services. This is highly unethical.
7. Insider Information
You use confidential supplier information to gain an unfair edge in negotiations. You should never use your suppliers’ sensitive information against them.
Never do it to bribe them into giving you more favorable terms that will save you a lot of money.
8. Environmental Negligence
You ignore supplier practices that harm the environment and produce ecological damage. Running a business is beyond just gaining monetary revenue or income. It also means adhering to environmental and ethical practices.
9. Subcontracting Violations
You allow subcontractors who engage in illegal practices like child labor. As where the entire supply chain starts, your procurement processes should start right and legally.
Don’t mind the costs or illegal alternatives that can give you monetary advantages. Rather, it’s more important to run your processes legally.
10. Double-Dealing
Never take part in two deals simultaneously just to get better conditions. It’s malpractice to consider one party while intentionally leaving one behind.
An example of this process is making conditions at the beginning of the year. In return, giving a supplier the prime position. Be it in events like Black Friday or Christmas.
You can fake compliance with this agreement all year long. For example, get a 1% purchase discount throughout the year.
With hopes, you get away with it when you can’t fulfill the agreement at the end of the year. I have seen such agreements come up quite regularly.
Top 11 Tips to Avoid Unethical Procurement Tactics
Here is a list of things to keep you away from the voice in your head that’s asking for trouble. The consequences of unethical procurement practices are not worth it.
1. Develop a Strict Code of Ethics
Make sure to create a comprehensive instruction code of ethics that itemizes expected behavior for procurement professionals.
In a way, this can be seen as a to-do list you can follow to ensure that you do not stray away from performing unethical practices.
2. Educate Procurement Teams
Train your employees about the importance of ethics and share with them the potential consequences of unethical behavior.
It’s a no-brainer that your employees may not share the same values as you and your company do, so it’s only safe that you ensure they follow ethical practices to avoid problems.
3. Communicate Clearly
Foster clear communication with your suppliers about your business’s ethical expectations. Discuss with them what’s important for you to operate continuously and address concerns that may challenge your adherence to ethical practices.
4. Transparent Process
Maintain transparent ethical procurement practices that are easy to understand and follow. This ensures that all of the people in your company can adhere to tactics with no difficulties.
5. Implement Audits
Regularly audit procurement practices to identify and address any potential ethical violations. Dig deeper and evaluate your processes by conducting meetings, surprise check-ups, and surveys to determine unethical practices.
6. Protect Whistleblowers
Establish mechanisms for employees and suppliers to report unethical behavior without fear of retaliation.
Let them understand that it’s more important to mitigate risks and provide solutions rather than cover them up.
7. Ethics Hotline
If it does not take much of your time or money, set up a confidential hotline for reporting unethical practices.
Concerning the previous point, you can protect your employees by setting up a secret and safe platform where they can report and bring ethical violation concerns.
8. Supplier Vetting
Thoroughly vet your suppliers to ensure that they keep ethical standards. This also means that you keep a healthy relationship and maintain regular communication with them where you discuss concerns or ethical risks.
9. Strengthen Legal Frameworks
Enforce legal contracts that clearly outline ethical expectations. This helps you and your suppliers to be guided accordingly in following the right procedures for successful procurement processes.
10. Continuous Monitoring
By continuously monitoring supplier relationships, you can spot early signs of unethical behavior. Thus, should there be any potential ethical risks, you can determine them as early as possible and strategize for solutions.
11. Be honest and fair
Perhaps the most important and simplest rule is to treat others as you want to be treated. Establish reliable relationships with your suppliers. Be honest and keep your promises. You will see that, as a result, the other party will also become more reliable.
The Role of Procurement Ethics in the Procurement Process
Procurement ethics keeps the procurement process clean and smooth. It also makes it seamless–free from errors and unethical issues. Let’s take a look at this list:
1. Supplier Selection
Ethical procurement ensures suppliers are chosen based on their ethical compliance. Also with quality standards and practices for a sustainable environment and social responsibilities.
2. Fair Bidding
It makes an unbiased bidding process possible. The process occurs when potential suppliers compete further for awards.
The focus is entirely based on merit for adhering to ethical practices. Moreover, they can avoid pushing for advantages using bribes or corruption.
3. Negotiations
Ethical procurement practices ensure transparent, honest, and respectful negotiation talks. Parties hope to reach mutually beneficial agreements. Thus, it makes negotiation processes easier and smoother.
4. Contract Fulfillment
Complying with proper procurement ethics guarantees honoring contractual commitments. This one valuable result lets you avoid potential disputes and foster long-term collaborations.
5. Data Protection
Appropriate procurement ethics integration emphasizes security and confidentiality. Sensitive supplier information shared during the process remains safe.
Where to Apply Procurement Ethics?
Procurement ethics find relevance in various industries, including the following:
1. Technology
Ethical procurement practices address data privacy and intellectual property rights. It also manages the responsible disposal of electronic waste.
It helps you keep your business safe from security risks. Moreover, it manages probable technological issues in the future.
2. Manufacturing
These ethical considerations make sure that your suppliers uphold proper labor practices. Additionally, It helps follow environmental standards in the entire production. Be it of goods and services you need.
3. Construction
They promote safety compliance the most in construction-related industries. They also ensure fair contracting of workers and practice environmentally responsible building.
4. Healthcare
No over-the-counter transactions. Procurement ethics ensures the safe sourcing of medical supplies, pharmaceuticals, and equipment.
Procurement Expert’s Advice on Procurement Ethics
For this article, we asked a seasoned procurement professional to share his insights regarding ethical procurement practices.
Sjoerd Goedhart
Owner, Goedhart Interim Management & Consultancy
LinkedIn Profile: https://www.linkedin.com/in/sjoerdgoedhart/
1. Can you share a personal example of procurement ethics? What can readers learn from this?
“In the past, a long time ago, I was regularly asked by a supplier of my customer to include a purchase obligation from this supplier in our contract to the common customer. In exchange, my people could use some facilities of this supplier for free.
Of course, we never agreed with this, because if you do this once and don’t do it the next time, you can be blackmailed by the supplier. My advice is never to put yourself in this position.”
Follow-up Question: If you ever agreed on it, what do you think will be the outcome?
“Yeah, I have never agreed on compromising ethical standards, and I never will. One should never find themselves in a situation where ethical boundaries are blurred.
Transparency and integrity should always be upheld, without exception. It’s essential to remain steadfast in one’s commitment to ethical procurement practices and never compromise on principles.”
2. What should readers know about procurement ethics?
“Ethics is a topic that must be considered in the preparation of any procurement process and it must be determined which possible unethical issues exist or could arise and what must be done in advance to avoid this.”
3. What is the biggest misconception about procurement ethics? What do most people get wrong about it?
“I think many people underestimate how important ethics are in the success of a negotiation. If the deal goes wrong because of price, is this the case or is there another reason?
In many cases, there is an ethical issue (and/or a lack of confidence) as to the underlying reason for the failure of the negotiation.
It is important to always evaluate this and take the conclusions into account or integrate them into a subsequent negotiation and negotiation strategy.”
4. Can you share examples of ethical dilemmas in procurement and how they were successfully navigated?
“There are several examples. In my opinion, it often happens that the negotiating partner is a known relation, e.g. from the same networking club or former colleague.
As a buyer, it is important to communicate transparently about this internally and to have an internal alignment of how to manage this negotiation.
Do you get permission to do it yourself, or all conversations and correspondence together with a colleague, or do you leave the negotiation to someone else?
It is important to always be transparent immediately, both internally to management and colleagues and to the negotiating partner.”
5. What role does corporate culture play in ensuring ethical procurement practices, and how can it be fostered?
“This is an important factor. If a company directs and trains its teams in this regard, it will be more likely to be top of mind in the doings of the procurement professionals.
It is important that leading by example from management is followed. If there is a culture of doing business with friends, shady deals, and/or only talking to a single supplier, then this is difficult to break.
It is important to draw up clear guidance and train, coach and audit the procurement professionals accordingly.”
6. Can you give some tips on how professionals can stay ethical with their work in the field of procurement?
“Be transparent, always. As well as internal as to suppliers and/or counterparts.”
7. How can procurement professionals handle unethical issues if they come across one in their work?
“Act as the company’s code of ethics says. If there is no ethical code, always report unethical behavior to a direct manager.
Both verbally and in writing. If you suspect unethical behavior, always report this immediately.
Don’t wait too long if you have a suspicion, discussing and aligning what to do together will also give you more guidance and ensure that you are not left alone.
This can also give you mental space to look at the route forward differently.”
Conclusion
Procurement ethics play a crucial role in maintaining the integrity of businesses and fostering sustainable relationships with suppliers.
Upholding these principles will not only strengthen relationships but also foster a remarkable amount of trust among stakeholders.
Should you embrace transparency, fairness, and responsibility, you can create a business environment that benefits most people and contributes to everyone’s sustainable future.
Remember: ethical procurement is not just a choice. Rather, it’s a commitment to integrity and excellence.
Frequentlyasked questions
What is Procurement Ethics?
Procurement ethics include the set of values, behaviors, and rules that govern you and your suppliers during the entire procurement process.
Can you provide some examples of ethical and unethical practices in procurement?
Ethical procurement practices include transparency in information sharing, avoiding conflicts of interest, treating suppliers fairly, prioritizing quality over cost, and promoting supplier diversity. Unethical practices encompass bribery, bid rigging, favoritism towards personal connections, misrepresentation of requirements, and engaging in price-fixing. These examples illustrate the spectrum of behaviors that align with or deviate from ethical standards in procurement.
How can businesses implement and promote procurement ethics?
The article offers a range of practical tips to promote ethical procurement, including developing a code of ethics, educating teams, maintaining transparent processes, and vetting suppliers. These tips help businesses foster an ethical environment, build trust with stakeholders, and avoid legal risks. By following these recommendations, businesses can commit to integrity and ensure a sustainable future.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
