Policies Defining the Conduct of Purchasing Personnel
These policies outline management’s commitment to ethical and honest behavior while guiding personnel who are confronted with difficult situations. Some business practices are technically not illegal but are potentially unethical or questionable.
Because of this, purchasing management must develop policies that provide guidance in these gray areas. Because purchasing personnel act as legal agents and representatives, they must uphold the highest standards as defined by executive policy and the law.
Ethics Policy
Most organizations, particularly mediumand larger-sized ones, have a written policy describing management’s commitment to ethical purchasing behavior. Chapter 15 discusses purchasing ethics in considerable detail.
Reciprocity Policy
A formal policy often exists which details management’s opposition to reciprocal purchase agreements. Reciprocity, discussed in the purchasing ethics section of Chapter 15, occurs when suppliers are pressured to purchase the buyer’s products or services as a condition of securing a purchase contract. A reciprocity policy usually describes management’s opposition to the practice and lists the type of behavior to avoid. Personnel must not engage in behavior that suggests any of the following:
- A buyer gives preference to suppliers that purchase from the buyer’s organization.
- A buyer expects suppliers to purchase the buying company’s products as a condition for securing a purchase contract.
- A buyer looks favorably on competitive bids from suppliers that purchase the buyer’s products.
This area requires an executive management policy because disagreement occurs regarding this topic. Reciprocity is relatively easy to control once management issues a policy on the subject.
Contacts and Visits to Suppliers
An understanding must exist regarding direct visits or other communication contacts with suppliers or potential suppliers. This policy should address not only purchasing personnel but also other departments or functions that visit or contact suppliers. Purchasing wants to control unauthorized or excessive contacts or visits because these can impose an unnecessary burden on suppliers.
Also, unauthorized supplier visits or contacts by nonpurchasing personnel undermine purchasing’s legitimate authority as the principal commercial contact with suppliers. Purchasing wants to avoid situations where suppliers might interpret statements and opinions offered by nonpurchasing personnel as commitments.
Former Employees Representing Suppliers Occasionally, an employee may leave to work for a supplier. This is a concern because the former employee probably has knowledge about business plans or other confidential information that might provide an unfair advantage over other suppliers. One way to address this issue is to establish a policy prohibiting business transactions with suppliers that employ former employees known to have inside or confidential information. This exclusion can range from a period of a few months to several years, depending on the employee and the situation. Another possibility involves including a clause in the employee’s original employment contract prohibiting employment with a competitor or a supplier for a specified time. This can offset the advantage a former employee may have from his or her previous employment.2
Reporting of Irregular Business Dealings with Suppliers
This policy may establish a reporting mechanism for buyers or other employees to report irregular business dealings. Examples of irregular dealings include accepting bribes from suppliers, cronyism, accepting late bids, owning a stake in a supplier’s company, and other types of behavior that are not considered part of the normal course of business. The policy can specify the proper office to which to report the irregularity, the safeguards in place to protect the reporting party, and the need to report suspected irregularities as soon as possible. This policy sends the message that management will not tolerate irregular business transactions involving employees.
The sourcing snapshot below suggests that even well-known Fortune 500 companies are guilty of using bribes as a mechanism to win bids. This is especially prevalent in countries where unethical actions are often dismissed and put “under the table.” In any case, the repercussions for unethical behavior are severe, with the penalties far outweighing the potential benefits.