Procurement Ethics

 Definition of Ethics
 Ethical Considerations in Procurement
 Sustainable Procurement Practices

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Ethical Procurement

CIPS defines ethical procurement as procurement processes which respect

fundamental international standards against criminal conduct (like bribery,
corruption and fraud) and human rights abuse (like modern slavery) and
respond immediately to such matters where they are identified and result in
progressive improvements to the lives of people who contribute to supply
chains and are impacted by supply chain decisions.

Being ethical means being in accordance with the rules or standards for right
conduct or practice, especially the standards of a profession.

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Ethical concepts and principles in procurement
Certain ethical principles and concepts guide procurement. They include
loyalty, transparency, integrity, fairness, confidentiality, due diligence and
proprietary.
Loyalty
Procurement personnel are supposed to maintain the highest standard of
loyalty and respect for rules and regulations.
Loyalty implies that the officer must at all times, act and take decisions in the
interest of his organisation.
In addition, officers involved in procurement must be guided by the following
in respect of loyalty.

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Officers should understand the rules and regulations pertaining to their
profession and organization.
They should know why the rules and regulations are necessary and what
caused the rules and regulations to be enacted.
Officers must also respect the need for the formality of rules and
regulations.
The rules must be interpreted and applied in accordance with their intent.
Officers should be able to perform procurement responsibilities effectively
and efficiently and still abide by the pertinent rules.

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Transparency
Transparency in procurement is very important especially in public procurement as
officers involved act on behalf of the government and the public.
Transparency refers to giving access to information about procurement to all
stakeholders.
It also applies to using the same rules and guidelines when dealing with all suppliers.
It also implies that all information related to procurement processes should be made
available to all parties involved, including the public unless there are legal restrictions in
place.
The purchasing and supply management process should be as transparent as possible,
within commercial and legal constraints.
This means being open with all those involved so that everyone, especially suppliers,
understand the elements of the process, that is, the procedures, timescales,
expectations, requirements, criteria for selection and so on.
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Integrity
Integrity entails strong moral principles and honesty.
The organisation’s moral values and principles should always be upheld, and
employees should act with selfless motives and not with the end objective of
gaining personally from a transaction.
Integrity must be judged based on the total behaviour of the person
concerned.
It includes basic qualities that are expected of all employees such as honesty,
truthfulness, fidelity, probity and freedom from corrupting influences.
An employee must subordinate his private interests and avoid placing himself
in a position where those interests would conflict with the interests of the
organization he serves.
A procurement professional must act without the intent of personal gain and
must not abuse his power or authority for private benefits.
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Confidentiality
Sometimes confidentiality seems to contradict transparency in that whereas
transparency asks professionals to be open and share relevant information,
confidentiality requires officials to be circumspect in handling information.

The two however should not be confused because confidentiality simply

requires that confidential information such as prices, strategies etc of
competitors must be held in confidence in order not to create an undue
advantage for one competitor over another.

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Fairness and impartiality
Fairness refers to equal treatment of all suppliers.
No discrimination and no partiality.
There should be no grounds to give an unfair advantage to one supplier or the
other to the detriment of other competitors.
Fairness results in mutual trust, public confidence in the procurement system.
Impartiality on the other hand, implies objectivity, lack of bias, tolerance, and
restraint.  
Employees’ personal views and convictions remain inviolate, but they must not
take sides to discriminate on religious, ethnic, gender or tribal grounds.
All personal biases must be eliminated, and all suppliers given equal treatment
in terms of tender opportunities

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Due diligence
Due diligence refers to carrying out a professional’s duties carefully and
thoroughly whilst avoiding careless practices.  
Due diligence requires that all activities by procurement officers be pursued
in a manner that goes beyond the minimum effort.
It implies that Procurement officers must take reasonable steps to assure
themselves that they are making the right decisions and taking the
appropriate actions.
In other words, duties should be undertaken with the utmost care to follow
all company regulations and standards while avoiding shortcuts. 
This includes examining critically, offers from tenderers and check their
background before award of contract.

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No Conflict of interest
A conflict of interest occurs when in the execution of one’s official duties as
an officer of an organisation, the person finds himself or herself in a position
to be influenced or appear to be influenced by a private or personal interest
s/he may have that could lead him to try to get a personal gain or advantage
or to avoid a personal disadvantage.
An officer who realises a possible conflict of interest in a particular
transaction should declare his interest and take himself off the related
activities.

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Actual conflict of interest exists when, given one’s personal or private
interests, one is able to be influenced.
Potential conflict of interest exists when the personal or private interest puts
a person in a position where he could be influenced.
Perceived conflict of interest exists when the personal or private interest
exposes the person to being in a position where he could appear to be
influenced in the execution of his duties.
In all of these forms of conflict of interest the overriding factor is that one’s
personal or private interest threatens to compromise his duty as public
officer or an employee of an organisation.
An example of conflict is when a procurement staff sets up a company to
supply goods and services to the company he works for.

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Code of conduct
To help employees to act ethically, various professional associations have put
together what is referred to as code of conduct.
Code of conduct refers to a collection of rules and regulations that include what
is and is not acceptable or expected behavior for members of an organization or
a professional association.
In procurement and supply, the Chartered Institute of Procurement and Supply
(CIPS), has code of conduct which guides it members. As you advance in the
procurement profession, you may become a member of CIPS. CIPS expects that
all members will abide by its code of conduct.
It expects that members will enhance and protect the standing of the profession,
maintain the highest standard of integrity in all business relationships, promote
the eradication of unethical business practices, enhance the proficiency and
stature of the profession and ensure full compliance with laws and regulations.
You may read the full code of conduct from the CIPS website.

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Acting ethically
To ensure that procurement staff act ethically for the benefit of the
organization, businesses must put in place straightforward measures to
ensure that procurement department adheres to procurement ethical
standards. These measures may include:
Development and implementation of an ethics policy.
Designation of an ethics coordinator to foster confidential communication
in the case of unethical practices.
Regular ethics training for existing staff and ethical orientation for newly
appointed staff.
Implementation of checks and balances process confirming accordance
with all standards.
Periodic audits of procurement and related activities. 

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 Sustainable Procurement
The Chartered Institute of Procurement and Supply agrees to the definition of
sustainable procurement by the UK’s Sustainable Procurement Task Force. The
sustainable Procurement Task Force defines sustainable procurement as a
process whereby organisations meet their needs for goods, services, works and
utilities in a way that achieves value for money on a whole life basis in terms of
generating benefits not only to the organisation, but also to society and the
economy, whilst minimising damage to the environment.
The definition then elaborates on the meaning of ‘whole life basis’ by stating
that “sustainable procurement should consider the environmental, social and
economic consequences of design; non-renewable material use; manufacture
and production methods; logistics; service delivery; use; operation;
maintenance; reuse; recycling options; disposal; and suppliers’ capabilities to
address these consequences throughout the supply chain”.

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The United Nations Development Programme (UNDP) defines sustainable
procurement as Sustainable procurement means making sure that the
products and services we buy are as sustainable as possible, with the
lowest environmental impact and most positive social results.
From the two definitions, we can define sustainable procurement as the
practice of integrating requirements, specifications, and criteria that take
environmental and social protection, social progress and economic
development into account at every level in order to ensure that the greater
good of the people is achieved presently and in the future.
In analysing the impact of sustainable procurement, one should take into
consideration the impact on the economy, environment, and the society as
a whole.

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Drivers of Sustainable Procurement
Why are more organisations especially international bodies interested in
sustainable procurement?
Why do businesses invest so much into sustainability?
There are three factors which are driving the need for sustainability in
procurement.
It must be noted that sustainable procurement may technically be a legal
requirement or as desire for the business to implement.
These are cost reduction, risk reduction and revenue growth.

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Cost reduction
The cost element of sustainable procurement is very important as businesses
aim to reduce their cost and rather maximise the profit.
Even in not for profit making organisations like public or government
agencies, the need to reduce cost is deemed as very critical as funds from
the central government is mostly inadequate for the running of such entities.
Cost reduction is associated with reduced cost of energy, reduced
consumption and reduced over-specification of requirements.
It also reduces costs associated with social and environmental compliance
cost. If a true system of sustainable procurement is practised, although initial
cost may be high, the life time cost reduces in the end.

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Risk reduction
Organisations which do not practice sustainable procurement risk having a
lot of issues including possible damage to their reputation and of course it
has some financial implications as well, for such organisations.
Imagine engaging in an unsustainable procurement practice such as using
child or forced labour in your supply chain or trading with business which
has no regard for environmental safety regulations. This can adversely affect
your business.
There is a risk associated with the economic cost of sustainable procurement
disruptions, such as noncompliance with industry environmental regulations
and social behaviour.
Implementing sustainable procurement practices ensures the organisation
work with suppliers who are also doing their part in terms of sustainability
and keeps your organization in compliance with environmental and social
regulations.

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Revenue growth
Revenue generation and maximization of profit is the aim of many business
organisations.
Revenue through sustainable procurement practices is generated by
innovation of eco-friendly products or services, price premium or income
from recycling programmes.
It also helps in additional revenue generation by increasing brand equity and
loyalty which ensures repeat purchases and more sales revenue.
In short, if the society gets to know that the seller or organization is
practising sustainability, they may want to trade more with it than others
who are not.

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Sustainable Procurement practices
It is never too late to adopt sustainable practices in procurement.
The time to do it is now. The more it is delayed, the more the organisation
misses the chance to realise its benefits.
Strategies and policies must be developed to implement the practice. You may
want to take a second look at your suppliers and decide on which of them can
do business with you based on your intent to adopt the sustainable policy.
Instead of trying to handle all suppliers, products and services at once, focus
efforts on smaller list of the goods and services that will make the most
impact.
This ensures you will have an effective collaboration between procurement
and other areas of the business and align your sustainability measures with
the broader business objectives.

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The three pillars of sustainable Procurement

According to CIPS, sustainable procurement has three pillars.

These are environmental impact, economic impact and social impact.
Mostly sustainable issues and debates turn to focus on the environmental
aspect but sustainability must encompass the three pillars.

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Environmental impact
The environment has become an important consideration in sustainable
procurement.
Environmentally friendly organisations are pushing for ways in which supply
chains can ensure that their actions do not have negative impact on the
environment.
For example, there are issues of biodiversity and climate change as well as
carbon footprints. Have you ever asked yourself how those factories who
produced the things we need and buy, dispose of their waste materials?
Today, businesses are investing in recycling so that they can help in making
the environment clean and healthy whilst at the same time, using it as an
avenue to generate additional revenue.

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Economic impact
Economic impact of sustainability includes issues of corporate
governance, ethical trading and payment to suppliers on time.
It behoves on the business organisation to practice ethical trading so that
it doesn’t incur cost for acting unethically.
Issues of fraud, bribery and corruption to win contracts must be dealt
with and given all the seriousness they deserve.

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Social impact
Social impact encompasses issues of supplier and workforce diversity and
human rights issues.
It is important that businesses do not engage in issues of child or forced
labour, cheating of vulnerable workers, and putting them under
unhygienic working conditions.
Organisations must strive to create equal opportunities for all and avoid
discrimination against race and ethnic groups as well as on gender bases.
Whilst practicing social sustainability, the organisation must also make
sure they only trade with suppliers who also do not breach rules and
regulations on the environment, society, and the economy.

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Benefits of sustainable procurement

Enhanced customer perception

Improved risk management

Compliance with regulations

Reduced cost

Competitive advantage

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THANK YOU
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