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General Ethics Issues

It is not uncommon to hear about corruption and unethical behavior within the supply world, even in larger Fortune 500 companies.  Many companies have adopted a zero-tolerance policy on purchasing practices that are unethical.  The definition of ethical behavior can differ from organization to organization, or individual to individual, which is why it is important for companies to clearly state what is considered unethical. 
Expand to explore some areas that comprise general ethics for both businesses and individuals.

Fraud / Dishonesty

No company wants to be the victim of supply chain fraud, due to the potential impact of financial loss, as well as the impact of negative public relations.
In addition to large-scale fraud, individual dishonesty may include misrepresentation by a buyer, exaggeration, gaining information through deception, lying, using corporate purchasing for personal needs, misleading a supplier, disclosure of confidential or proprietary information to a supplier’s competitor, or sharing competitive information with other suppliers.
Clear separation of duties should be put in place that make it more difficult for employees or suppliers to act fraudulently.  For example, no one single person should have the authority to create and/or authorize a purchase order, and then be responsible for payment of that purchase order. 

Conflict of Interest

It is imperative that purchasing personnel avoid any potential conflicts of interest when dealing with suppliers.  That includes staying free from unethical influences in the selection of suppliers, or dividing loyalties between their own firm and that of a supplier.  An example would be when a manager or buyer is a stockholder in the supplier’s firm, or is a close friend or relative of that supplier. 

  • Financial conflicts of interest. Business is awarded to a supplier by a buyer that has a direct financial interest in the success of the supplier.  Any of these conflicts should be disclosed to management, and the purchase of that item or service be done by someone else.
  • Personal conflicts of interest. Business is awarded to a supplier that does or has employed a close relative or the buyer themselves.  Disclosure of the relationship should be made so that the buyer can remove themselves from the conflict.


There is a very fine line between what is legal and illegal in this area, and it is usually determined by whether the activity restricts competition, such as looking more favorably on bids from suppliers that purchase the buying organization’s products or services. 
Reciprocity, or countertrade, is giving preference to suppliers that are also customers of the organization, including making that a condition of a purchasing contract. In other words, “If you’ll buy from me, I’ll buy from you.” 

Bribery and Corruption

Corruption has been identified as a leading barrier to conducting business in many of the world’s economies, making it an obstacle to economic and social development around the world.  Corruption scenarios within procurement might include:

  • Demanding or offering kickback in order to receive contracts
  • Providing inside information during bidding process
  • Demanding bribes in order to buy goods or services
  • Offering bribes to overlook poor quality goods or services
  • Submitting false invoices for work done or products delivered
  • Offering/acceptance of gifts, entertainment, gratuities or favors in exchange for business

Firms often address the acceptance of bribes or gifts by defining a dollar value limit for existing suppliers that may simply be thanking the buyer, whereas gifts from potential suppliers can be strictly off-limits.  Different standards of behavior should not exist within the same firm, e.g., purchasing is prohibited from accepting gifts from suppliers, but marketing can send gifts to potential customers.

Anti-corruption legislation is in place in many countries, giving companies a clear mandate on how to avoid unethical behavior and enforce anti-corruption policies within their organization and their supply chain.

  • If the action is illegal, both the buyer and the firm may face legal or financial penalties.
  • The professional reputation of the buyer may be damaged, not only internally, but within the industry, and may be difficult to improve.
  • The buying organization’s reputation may be harmed with their supply base, as well as the general public, which may impact their ability to profit and succeed.

Organizational Best Practices

Organizational best practices for avoiding non-ethical behavior include:

  • Establishing a code of conduct and ensuring that employees understand its principles and sanctions
  • Implementing reporting procedures and mechanisms
  • Publicizing attempts to bribe employees
  • Establishing a reputation for zero-tolerance
  • Providing anti-corruption training to staff and suppliers
  • Putting preventive measures in place, such as limits to buying authority, multiple levels of authorization, system of checks and balances, separation of duties
  • Establish effective whistleblower policies so that interested parties can anonymously report fraudulent behavior without fear of reprisal

Basic Rules for Procurement

Some basic rules for ethical behavior by procurement professionals include:

  • Buyers must perform their duties for the organization’s benefit, not their own.
  • Buyers must not accept outside gifts or benefits that violate their organization’s policies.
  • Buyers should not be influenced by or have financial arrangements with unethical suppliers.
  • Buyers should act ethically toward existing or potential suppliers by treating them professionally and with respect.
  • Buyer’s should not use or provide confidential information to any third party.
  • Buyers must uphold their organization’s ethical standards.
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