McGraw-Hill/Irwin

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights 19-1

reserved.

Chapter 19
Ethics and Social
Responsibilities

19-2

Key Concepts
Ethics Defined
Ethics in the Supply Management Context
Professional Purchasing and Supply Management Ethics
Principles and Standards of Purchasing and supply
Management Practice
Management Responsibilities
Written Standards
Ethics Training and Education
Departmental Environment
Miscellaneous Factors

Dealing with Gray Areas

The Four Way Test

Social Responsibilities
19-3

Ethics in Supply Management

Ethics are the guidelines or rules of conduct
by which we aim to live
Does running an ethical operation yield
positive results for a company?
A literature review of papers investigating
whether increased social responsibility
results in favorable financial performance
found:
33 studies showing a positive relationship
5 studies showing a negative relationship
14 showing no effect or inconclusive results
19-4

Survey of 4,035 Employees Across a Variety of

Industries
97% said good ethics are good business
67% said that ethical conduct isnt
rewarded in American business
82% believe that managers generally
choose bigger profits over doing whats
right
25% said their companies ignore ethics to
achieve business goals
33% reported that their superiors had
pressured them to violate company rules
19-5

Professional Supply Management Ethics

The pressures that the marketplace exerts
on supply management departments and
on individual buyers make it essential that
top management and supply management
recognize and understand both the
professional and ethical standards
required in the performance of their duties

19-6

Principles of Supply Management Practice

1. Loyalty To Your Organization
2. Justice To Those With Whom You Deal
3. Faith In Your Profession

From these principles are derived 12

standards of supply management practice

19-7

Twelve Standards
1. Ethical Perceptions

8. Governing Laws

2. Responsibilities to
the Employer

9. Small,
Disadvantaged, and
Minority Owned
Businesses

3. Conflict of Interest
4. Gratuities
5. Confidential
Information
6. Treatment of
Suppliers
7. Reciprocity

10. Personal Purchases

for Employees
11. Responsibilities to
the Profession
12. Global Supply
Management
19-8

1. Ethical Perceptions
Avoid the intent and appearance of
unethical or compromising practice in
relationships, actions, and
communications.

19-9

2. Responsibilities to the Employer

Demonstrate loyalty to the employer by
diligently following the lawful instructions
of the employer, using reasonable care
and only the authority granted.

19-10

3. Conflict of Interest
Refrain from any private business or
professional activity that would create a
conflict between personal interests and
the interests of the employer.

19-11

4. Gratuities
Refrain from soliciting or accepting
money, loans, credits, or prejudicial
discounts, and the acceptance of gifts,
entertainment, favors, or services from
present or potential suppliers that might
influence, or appear to influence, supply
management decisions

19-12

Guidelines in Dealing with Gratuities

Business Meals
Occasionally appropriate
For specific business purpose
Frequent meals same supplier should be avoided
Attempt pay for meals as frequently as the supplier

Global Supply Management

Foreign cultures, special circumstances
Reciprocal gift giving of nominal value
Careful evaluation of nominal value

19-13

5. Confidential Information
Handle confidential or proprietary
information belonging to employers or
suppliers with due care and proper
consideration of ethical and legal
ramifications and governmental
regulations

19-14

Examples of Confidential Information

Pricing and cost date
Bid or quotation information
Formulas and process information
Design information (drawings, blueprints, etc.)
Company plans, goals, strategies, etc.
Personal information about employees or
trustees
Supply sources and supplier information
Customer lists and customer information
Computer software programs

19-15

6. Treatment of Suppliers
Promote positive supplier relationships
through courtesy and impartiality in all
phases of the supply management cycle.

19-16

7. Reciprocity
Refrain from reciprocal agreements that
restrain competition

19-17

8. Governing Laws
Know and obey the letter and spirit of laws
governing the supply management
function, and remain alert to the legal
ramifications of supply management
decisions

19-18

Key Laws and Regulations in the USA

Uniform Commercial
Code
The Sherman Act
The Clayton Act
The Robinson-Patman
Act
The Federal Trade
Commission Act

The Federal
Acquisition
Regulations
The Defense
Acquisition
Regulations
Patent, Copyright, and
Trademark Laws
OSHA, EPA, and
EEOC Laws
Foreign Corrupt
Practices Act
19-19

9. Small, Disadvantaged, and Minority Owned

Businesses
Encourage all segments of society to
participate by providing access for small,
disadvantaged, and minority-owned
businesses.

19-20

10. Personal Purchases for Employees

Discourage supply managements
involvement in employer-sponsored
programs of personal purchases that are
not business related

19-21

Recommended Guidelines for Personal

Purchases for Employees
Avoid using an employers purchasing
power for special purchases
Make certain of fair arrangements for
personal purchase programs
Use caution to ensure that employersponsored programs do not force special
concessions on the supplier
Suppliers should be made aware that such
purchases are not for the employer, but for
the firms employees
19-22

11. Responsibilities to the Profession

Enhance the proficiency and stature of the
supply management profession by
acquiring and maintaining current
technical knowledge and the highest
standards of ethical behavior.

19-23

12. Global Supply Management

Conduct international supply management
in accordance with:
the laws, customs, and practices of foreign
countries,
consistent with your countrys laws,
your organizations policies,
and these Ethical Standards and Guidelines

19-24

Important Areas Requiring Amplification

Avoid Sharp Practices
Competitive Bidding
Negotiation
Samples
Treating Salespeople with Respect
Substandard Materials and Services
Gifts and Gratuities

19-25

Avoid Sharp Practices

Evasion and indirect misrepresentation
Just short of actual fraud
Sharp practices focus on short-term gains
and ignore the long-term implications for a
business relationship

19-26

Examples of Sharp Practices

A supply manager talks in terms of large
quantities to encourage a price quote on that
basis
A large number of bids are solicited in hope that
the buyer will be able to take advantage of a
quotation error
Bids are obtained from unqualified suppliers that
the supply manager would not patronize in any
case
A supply manager who places in competition the
prices of seconds, odd lots, or distress
merchandise misrepresents a market
19-27

Examples of Sharp Practices

An attempt is made to influence a seller by
leaving copies of bids, or other confidential
correspondence, where a supplier can see them.
A concession may be forced by dealing only with
hungry suppliers
Obscure contract terms of benefit to the supply
managers firm are buried in the small type of
contract articles
A supply manager may take advantage of a
supplier who is short of cash and who may seek
only to cover his/her out-of-pocket costs

19-28

Competitive Bidding
Invite only firms to whom they are willing
to award a contract to submit bids.
Normally, award the contract to the lowest
responsive, responsible bidder.
Keep competitive price information
confidential.
Notify unsuccessful bidders promptly so
that they may reallocate reserved
production capacity.

19-29

Competitive Bidding
Treat all bidders alike.
Do not accept bids after the announced
bid closing date and time.
Do not take advantage of apparent
mistakes in the suppliers bid.
Do not shop or conduct auctions for low
prices.

19-30

Negotiation
A professional should maintain high
ethical standards, such as:
Competitors are informed of the factors that
will be involved in source selection.
All potential suppliers are given equal access
to information and are afforded the same
treatment.
Supply professionals strive to negotiate terms
that are fair to both parties
Do not take advantage of mistakes in the
suppliers proposal
19-31

Samples
Many potential suppliers offer, even push,
the acceptance of samplesJust try it
and see if it doesnt do a superior job for
you
When a sample is accepted, supply
professionals ensure that appropriate
tests are conducted in a timely manner

19-32

Treating Salespeople with Respect

Appointments with salespeople should be
meticulously kept
A mutually effective policy is for supply
management personnel to see every
salesperson on his or her first call

19-33

Substandard Materials and Services

Two proprieties:
The supplier should be given prompt notice.
The appropriate supply manager should
conduct negotiations for adjustments with the
appropriate sales personnel in the suppliers
organization.

19-34

Gifts and Gratuities

Theres No Such Thing as a Free Lunch
A minority of supply professionals feel that
any form of gratuity constitutes a conflict with
ethical standards

Traditional Sales Techniques

The majority consider many of gifts and
gratuities to be traditional sales tools

Cultural Ramifications

19-35

Management Responsibilities
Written Standards
Ethics Training and Education
Departmental Environment
Miscellaneous Factors

19-36

Dealing with Gray Areas

Employer
Suppliers
Colleagues

19-37

The Four Way Test

Is it the TRUTH?
Is it FAIR to all concerned?
Will it build GOODWILL?
Will it be BENEFICIAL to all concerned?

19-38

Concluding Remarks
If you were to write your own obituary,
what would it say?
How did you treat other people?
Did you touch the lives of others?
What would you want it to say about your
ethics?

Now think about this:

You are writing your obituary each day of your
life by the way you choose to live

19-39