Ethical issue

Ethics relates to principles or standards of human conduct which are sometimes called morals.
In an organization ethical requirements may be documented in a document called code of
ethics. Within procurement there is normally an exchange of money for goods and services.
Sometimes a lot of money is involved and an level of temptation suppliers will sometimes go to
a lot length to secure some business and therefor they become a source of unethical behavior.

Ethics (also known as moral philosophy) is a branch of which seeks to address questions about;
that is, about concepts such. Ethics can also be defined as rules or standards governing the
conduct of a person or the members of a profession e.g procurement function. The following
guidelines ensure the ethics management program is operated in a meaningful fashion;

 Recognize that managing ethics is a process: ethics is a matter of values and associated
behaviors. Values are discerned through the process of on-going reflection. Therefore,
ethics programs may seem more process-oriented than most management practices.
Managers tend to be skeptical of process-oriented activities, and instead prefer
processes focused on deliverables with measurements. However, experienced managers
realize that the deliverables of standard management practices (planning, organizing,
motivating, controlling) are only tangible representations of very process-oriented
practices. For example, the process of strategic planning is much more important than
the plan produced by the process. The same is true for ethics management. Ethics
programs do produce deliverables e.g. codes, policies and procedures, budget items,
meeting minutes, authorization forms, newsletters, etc. however, the most important
aspect from an ethics management program is the process of reflection and dialogue
that produces these deliverables.
 The bottom line of an ethics program is accomplishing preferred behaviors in the
workplace.
As with any management practice, the most important outcome is behaviors preferred
by the organization. The best of ethical values and intentions are relatively meaningless
unless they generate fair and just behaviors in the workshop. That’s why practices that
generate lists of ethical values, or codes of ethics, must also generate policies,
procedures and training that translate those values to appropriate behaviors
 The best way to handle ethical dilemmas is to avoid their occurrence in the first place.
That’s why practices such as developing codes of ethics and codes of conduct are so
important. Their development sensitizes employees to ethical considerations and
minimizes the chances of unethical behaviors occurring in the first place.
 Make ethics decisions in groups, and make decisions public, as appropriate. This usually
produces better quality decisions by including diverse interest and perspectives, and
 increases the credibility of the decision process and outcome by reducing suspicion of
unfair bias.
 Integrate ethics management with other management practices. When developing the
values statement during strategic planning, include ethical values preferred in the
workplace. When developing personnel policies, reflect on what ethical values you’d like
to be most prominent in the organization’s culture and then design policies to produce
these behaviors.
 Use cross-functional teams when developing and implementing the ethics management
program. It’s vital that organization’s employees feel a sense of participation and
ownership in the program if they are to adhere to its ethical values. Therefore, include
employees in developing and operating the program.

Principles of professional Ethics

1. Impartiality or objectivity
When you make a decision you are objected
2. Openness and full disclosure
So that you don’t take undue advantage of others
3. Confidentiality
4. Due diligence, competence and duty of care
5. Conflict of interest
Avoid conflict of interest

Ethical variables

1. Organizational environment
Culture of the organization
2. Personal experiences
3. Culture environment
Right and wrong (the society can influence behaviors)
4. The industry environment/practices

Indicators of procurement fraud

1. Excessive hospitability by suppliers to staff

2. New suppliers finding it difficult to enter
3. Lifestyle change
4. Budget holder passing buyer
5. Tailored specifications to supplier
6. Supplier’s payment not challenged`
7. Absence of supplier approval data
 8. No supplier visits/audits

Negotiation

These are discussions held between the buyer and the suppliers just before they enter into the
contract or during the contract. It is made to enable the buyer and the supplier to agree on the
terms of trading or solve any problem which might interfere with smooth running of the
activities. It’s the duty of purchasing department to carry out all negotiation with the supply
department the source on behalf of the company.

This is the process whereby two or more parties decide what each will give and take in an
exchange between them. Negotiation can also be defined as any form of verbal communication
in which the participants seek to exploit their relative competitive advantages and needs to
achieve explicit objectives within the overall purpose of seeking to resolve problems which are
barriers to agreement.

In any negotiation there must be a winner which leads to an agreement between the parties.
The purchasing staff obtains the knowledge on negotiation through their training and also from
the purchasing of manual provided to them which contain information concerning effective
negotiation process consisting of three main stages

I. The pre-negotiation stage

II. The actual negotiation
III. Post negotiation stage

Pre-Negotiation stage

It involves the parties in preparation of the agenda so that the members to the negotiation are
informed about the subject to be able to prepare for the actual negotiation. It involves
supplying the agenda to the members and also setting of the venue and date for the
negotiation.

Also involves gathering information about the subject so that the parties can be able to have
enough information to exploit their negotiation. At this stage parties will prepare by also setting
individual objectives both explicit and implicit with which they will want to achieve from the
negotiation.

The Actual Negotiation

At this stage parties to the negotiation meet for their discussion in the agreed venue, hard
bargaining and it is that part that has a stronger negotiation power that win the negotiation. It
also involves the employment of tactics for the party to be able to win therefore this stage
comes to an end by having an agreement between the parties and by one party being the
winner of the negotiation.

Post negotiation

This involves the recording down of what has been discussed and agreed upon between the
buyer and the supplier at the actual negotiation stage. It also involves the implementation of
what has been discussed and agreed upon.

Reason for negotiation

i. To be able to set terms and conditions binding their contract e.g. the terms of trade at
which the goods are to be supplied.
ii. It helps to avoid misunderstanding between the buyer and the supplier which might
develop if no agreement is made.
iii. It contains some good will relationship between the buyer and supplier by ensuring that
every part implements the agreement in their negotiation.
iv. Problems arising from delivery of poor quality material not maintaining lead time,
quantity can be solved.

When to use negotiation

i. When business risks cannot be accurately detailed

ii. When long period of time is required to produce items to be purchased
iii. When production is interrupted due to change technology
iv. When products of specific suppler are desired for the exchange
v. When the purchases involves capital items

Objectives of negotiation

i. To see that the interest of an organization is not put in a disadvantageous position

ii. To see that the interest of an organization get all the benefits
iii. To see that distant future is not bargained for the present.
iv. To see that long & short terms effects are properly measured & pros and cons are fully
weighted.
v. To see that terms are settled in unambiguous terms and nothing is left to interpretation
which may lead to misunderstanding & bitterness.
Factors that can be considered in negotiation

i. Terms of trade e.g. credit facilities, duration of credit, after sales services, discounts etc.
ii. Terms of payment i.e. either by cash or cheque
iii. The quantity of goods to be supplied
iv. The lead time and delivery time
v. Security of goods while in transit

Factors that contribute to the buyer in winning the negotiation

i. Where the need is not urgent and can be postponed

ii. Where the buyer has an alternative supplier in the market to where be can obtain
materials.
iii. Where the buyers is holding on make or buy decision so that he can party buys from the
outside suppliers to accept the buyers terms so that they can be able to retain him in
the market.
iv. The buyer is also able to win if he is holding a monopolistic position by being the only
buyer in the market.
v. Where the supplier is anxious of obtaining some business
vi. If the buyers are known for their good reputation of paying promptly and obtaining
goods in bulk may also influence the supplier to accept his terms.
vii. If the buyer is brief about the negotiation position of the supplier, it may enable him to
handle the negotiation effectively.
viii. If the buyer has other substitute goods in the market to which he can turn to as an
alternative he may influence him to be the winner.

When the supplier is in a stronger position to negotiation?

i. Where the need is urgent and cannot be postponed

ii. The supplier holding a monopoly position by being the sole supplier so that the buyer
does not have alternative supply source to turn to
iii. Where the supplier is known for his reputation by supplying high quality material at the
right time and at fair terms of trade which might also influence the buyer to accept his
terms
iv. Where the supplier has been brief about the negotiation so that he can be able to
handle the negotiation effectively.
v. Where the buyer has no other alternative or substitute goods in the market it may also
influence the buyer to accept the suppliers terms.
 Tactics used in negotiation
i. Use of convincing language
ii. The group negotiation – in this the buyer may decide in this to go in large numbers to
meet their suppliers so that they can be able negotiation effectively. This gives them an
opportunity to contribute ideas which can easily convince the other negotiating party.
iii. Home ground – this where the parties may want that negotiation should take place in
their home ground which should be taken as an advantage over the strange party in the
environment. This can enable the party to easily win the negotiation.

Factors hindering negotiation

i. Distance between the parties hence hard to meet face to face

ii. Venue – unfavorable environment to either of the parties
iii. Lack of the knowledge by the parties so that they are not able to carry out their
negotiation effectively.

Risk management

Risk implies uncertainties of profits or danger of loss due to some unforeseen events in the
future. It refers to the chance of loss on account of unfavorable or unpredictable happening. In
every risk there exist possibilities of loss which may or may not be measurable. Business risk
may be defined as the chance of loss in business activities due to events which creates adverse
situation contrary to expectations.

The main characteristics of business risks are;

i. Risks are inherent in business

ii. Business risk arise due to uncertainties
iii. Risks varies according to the nature and size of business
iv. Profits are rewards for risk taking
v. Business risk cannot be evaluated easily

Causes of business risk:

I. Economic causes; this refers to changes in the market conditions, market fluctuations to fall
in demand, price fluctuations and stiff competitions etc.
II. Technological changes; rapid changes in technology and techniques in production may result in
technical obsolescence and other business risk.
 III. Human causes: negligence and dishonesty of employees, irrational approach of
managers, failure of supplier to deliver the materials in time, strikes etc. are some of the
examples of human causes
IV. Natural cause: these entail earthquake, floods, etc. which can cause a heavy loss of life
and property.
V. Physical causes: this implies the failure of machinery and equipment used in the
business e.g. breakdown of machine may result in the damage of perishable goods.
VI. Political cause: this may entail civil wars, hostilities with neighboring countries and
general instability of country. These issues make company’s progress to affect adversely.

Management of risk involves the following stages:

 Identification of the risk

 Evaluation of the risk
 Choice of the method of handling the risk
 Utilizing the selected devices
 Evaluating the alternative

The main techniques of reducing business risk entail:

 Forecasting and marketing research

 Provision of safety programs
 Credit screening and control
 Business combination
 Government regulations
 Training and development of employees.