Ethics in a Decentralized Procurement Environment

Both buyers and sellers are responsible for ethical behavior.

As an experienced and certified procurement professional, I adhere to the Institute for Supply Management’s Principles and Standards of Supply Management Conduct.

But that doesn’t mean everyone else does.

I’ve worked with buyers, planners, and even procurement managers who flaunted company ethics rules and accepted trips, gifts, and cash from suppliers looking to curry favor. One buyer would even leave his trunk unlocked during the two weeks before Christmas to save the supplier the trouble of coming into the office with her gifts. And yes, some on both sides lost their jobs when caught.

Those instances lead me to worry about what happens to ethics, both on the buy side and sell side, in the evolving decentralization of procurement into engineering, R&D, and even areas such as marketing and human resources. I’ve worked with some with the outdated perception that anyone who acts as buyer is ‘owed’ some sort of gift, or worse, when placing an order with a new or existing supplier.

This quid pro quo has no place in business today.

When non-procurement personnel are involved in procurement activities, there can be ethical challenges that arise due to a lack of understanding, knowledge, or experience in procurement practices. With the rise of decentralized procurement processes, where decision-making authority is dispersed across various departments and individuals, ensuring supplier-related ethics becomes even more critical.

Ethical conduct ensures fair treatment of suppliers, fostering long-term partnerships based on trust and mutual respect. It reduces the risk of unethical practices on the buy side, such as bribery, corruption, or collusion, which can tarnish an organization's reputation and result in legal consequences. And, ethical procurement practices usually align with corporate social responsibility goals, allowing organizations to promote sustainability and social impact through their supplier relationships.

Here are some issues to be aware of in a decentralized procurement model.

Accountability. Every individual involved in the procurement process must understand their responsibilities and be held accountable for their actions. This can be achieved through regular training programs, clear policies and procedures, and the formation of ethical guidelines that identifies and reinforces expected behaviors. Suppliers must be held accountable as well.

Monitoring and Auditing. Regular monitoring and auditing are essential for evaluating the effectiveness of ethical practices. Organizations should assess supplier compliance with ethical standards, conduct periodic financial audits, and implement corrective actions. Continuous monitoring not only ensures accountability but also provides opportunities to strengthen the organization's commitment to ethical supplier relationships.

Non-compliance with Procurement Policies. If non-procurement personnel are not well-versed in procurement and supply management policies and guidelines, they may inadvertently violate company procurement rules and regulations. This can include favoring certain suppliers without justification or engaging in unauthorized purchases from unapproved or unqualified suppliers, leading to ethical breaches and legal implications.

Inadequate Supplier Evaluation. Non-procurement personnel may lack the expertise and resources to effectively evaluate and select suppliers. This can result in poor supplier choices based on inadequate due diligence, leading to substandard products or services, potential ethical issues, or increased supply chain risks.

Improper Use of Authority. Non-procurement personnel may misuse their authority or engage in unethical practices, such as accepting gifts or gratuities from suppliers, exerting undue influence, or engaging in favoritism. These actions can compromise the integrity of the procurement process, undermine fair competition, and erode trust.

There are several ways companies can address the issues pertinent to decentralization.

• Provide comprehensive training and education on procurement policies, ethics, and best practices to non-procurement personnel. This ongoing training should be done by the leadership of the procurement organization.
• Establish clear guidelines and processes for procurement activities and ensure that they are well-communicated and understood by all personnel involved. These principles should be part of the company’s code of ethics.  
• Implement proper oversight and monitoring mechanisms to detect and address any potential ethical issues. Law of agency provides that the ultimate responsibility to spending the company’s money rests with procurement.
• Encourage a culture of transparency, accountability, and adherence to ethical standards throughout the organization.
• Foster collaboration and communication between procurement and non-procurement personnel to ensure a shared understanding of ethical practices and promote adherence to established guidelines.
• Purchase from approved, authorized, and competent sources of supply. Avoid brokers, manufacturers’ representatives, and non-authorized distributors. The procurement department has control of the approved vendor list (AVL).
• Make sure that suppliers understand the company’s ethical standards and that violation could result in disqualification.