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PurchasingB2B

Ethical procurement

Despite talk of ethical supplier relations, some buyers still think suppliers deserve nothing more than suspicion and, at best, should be held at arm’s length.


September 15, 2011
by Roger Nenonen

Purchasingb2b: July/August 2011

Despite talk of ethical supplier relations, some buyers still think suppliers deserve nothing more than suspicion and, at best, should be held at arm’s length. Stories abound in which the buyer seeks personal gain, often compromising the relationship between the supplier and the buyer’s employer. Buyers must avoid this pitfall, and this article explains how ethical relationships with suppliers have many rewards, some of which are surprising.

The following notions, either implied or stated explicitly, set the stage for the wrong kind of buyer-supplier relationship:
• To land the contract, what will you give me? Sports tickets? Clothing? A vacation?
• Would the quote you gave me on an item or service also apply to me personally?

Expectations like these can ruin a fair relationship. Suppliers must add an “extra” to their bid submission, knowing it may make the difference in winning the contract. This can drive value out of their bid (better price, payment terms, warranty, freight terms) that the buyer’s organization may have seen. The additional expectation compromises the bidding process, while savings and potential purchasing benefits are lost.
Integrity and fairness serve a buyer well and build a reputation that suppliers (and the buyer’s employer) notice. I have some examples that have resulted in positive outcomes for my employer and me.

While employed by an ailing paper mill I had the opportunity to go through creditor protection. For the supplier, the outcome of this process can be devastating since any materials or services might not be paid for after court controlled restructuring is imposed.

A typical result for the supplier is not being paid at all, or receiving a portion (for example, 10 percent on the dollar) of an invoice. The mill’s approach was to return goods to suppliers where possible (taking into account the operation’s needs), which reduced their losses. This required collaborative effort involving stores, engineering and operations personnel. But the suppliers were grateful. Following the mill closure and re-opening, several things happened:
• Suppliers were receptive to dealing with the mill again, improving start-up tremendously;
• Suppliers maintained financial health, so they could keep the supply chain unbroken; and
• Most important, relationships with the suppliers improved since the mill showed concern for their potential losses. Suppliers wanted to see the mill succeed and worked toward its best interests. Ultimately, both sides benefited through this balance of interests.

Another example of ethical practices deals with over-shipment returns. Let’s say a buyer orders 10 widgets but receives 12. Should they be returned
or remain “off the books” and received by the buyer or stores’ staff, thus benefiting them personally? Is this not a harmless activity, where the missing materials simply become another supplier write-off or freight claim? The benefits of returning the materials to the supplier are abundant:
• It helps manage their costs, which in turn helps the purchaser keep costs down;
• It maintains and promotes the buyer’s (and the employer’s) professional and ethical image, which furthers vendor relations and future negotiations;
• It’s the right thing to do and is in keeping with being honest and ethical in business relationships.

Another ethical questions is who pays during meals with suppliers? Business dinners to discuss supply relationships are a valuable opportunity for both sides. This is particularly true where supply chains are of high or critical value to an operation.

My position is, take turns paying. This has surprised some suppliers I’ve dealt with, since they had almost always paid. From their perspective, it’s simply about business and managing customers. I believe it’s better to balance this relationship and avoid “being bought”, which ensures the business benefits the buyer’s employer solely.

This is the way it should be. Such a relationship also improves the supplier’s view of the buyer, since they understand that the relationship requires them to provide supply chain value and nothing further.
Here’s a personal example of a potential benefit of ethical supplier dealings. After starting my current position, a reputable and familiar supplier advised me that a manager within my organization had asked him to comment on me personally. Their discussion focused on ethics, and the supplier described his dealings with many buyers, detailing how some had placed a strain on him and his employer. Their expectations went beyond their supply chain needs. He said that he felt more comfortable dealing with price, quality and supply timeliness rather than dinners, sports tickets, gifts and the like.

Purchasing success comes largely through treating suppliers with fairness and dignity. The rewards of dealing with business associates in this way are abundant and enduring.

Roger Nenonen, SCMP, is stores supervisor, public works and transportation, with the City of Sault Ste. Marie. You can reach him at r.nenonen@cityssm.on.ca.