Procurement ethics: yesterday, today and tomorrow

Newer folks coming into the procurement profession are likely unaware of some of the tawdry behaviors of those who preceded them.

Since purchasing agents typically weren’t paid very well, management turned their heads when suppliers came in bearing gifts to curry favor with their favorite buyers. Gifts were seen as a way to offset the poor pay. The general reputation of the purchasing agent, with a purchase order in one hand and tickets to the big game in the other, was hard to break. And in some companies, it continues to exist.

Let me share a few of the more egregious lapses in procurement ethics I’ve seen. 

• A manager showing everyone the keys to a condo in Florida he borrowed from one of his suppliers, bragging about the family trip he had planned during school vacation. But he was upset that he couldn’t find anyone to pay for the airfare … and meals.
• An engineer, complicit with the buyer, who changed a specification of a series of easy to get parts to a phantom part number that only one supplier could fulfill, making the commodity sole sourced and expensive. The engineer and the buyer received commissions on every order from the supplier.
• The buyer who yelled at the supplier for bringing a case of liquor to the buyer’s desk at holiday time, and for not putting the bottles in the buyer’s unlocked car trunk as directed. It seems as if the trunk was already filled with some new golf clubs and there wasn’t room.
• The supplier who insisted that the buyer accept a gas grill for their new home and complained to the buyer’s manager that since the gift was already paid for it was the obligation of the buyer to accept it.

These examples are not meant to say all ethical breaches were in the procurement department. In my second day on the job for a new employer, all 150 employees were brought into the conference room and told the company was under a United States Securities and Exchange Commission investigation for falsifying the stock price. The CEO eventually landed in federal prison, and the CFO was led out of the building in handcuffs. He was on probation for manipulating the stock price at his previous company.

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The general reputation of the purchasing agent, with a purchase order in one hand and tickets to the big game in the other, was hard to break. 

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Over the years, procurement’s importance forced the function to become more professional. The pay increased and the profession shed its reputation of graft, gifts and gratuities. Ethics training helped improved professionalism and accountability. The procurement and the entire materials function became part of mainstream management. 

Where it all breaks down is in the decentralization of the procurement process. “Do it yourself purchasing” is becoming the procurement strategy at many organizations now and likely others in the future. As a result of enterprise level supply management software, and an effort to control staffing, procurement gives up significant control of buying to engineers, lab managers, facilities staffs and assorted requisitioners across the company, each with their favored suppliers.

While there may be established contracts and approved supplier lists, maverick spend outside of those constraints continues to be an issue, leading to the potential of bad behavior for buyers and sellers. Some sellers look to the unsophisticated buyer as an opportunity to infiltrate a company, bypassing the purchasing department and gaining direct access to the customers. The new “buyer” may just assume gifts (or more) are considered business as usual, given the traditional reputation of the purchasing agent.

There are also those in the supply chain management function with increasingly unsupervised supplier communication, including planners, expediters, transportation managers, warehouse managers and anyone with direct supplier communication as a result of changes in the supply management process. They have direct and unmonitored access to suppliers, for better or for worse. Increased supplier interaction by those with limited ethics training, or even malintent, provide an opportunity ripe for unethical behavior by customer and supplier alike. This can undermine ethics related compliance and put a company in legal jeopardy.

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The decentralization of the procurement process and the extended global supply chain provides far too many opportunities for ethical breaches.

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The future is uncertain. While ethics training and enforcement is critical, the decentralization of the procurement process and the extended global supply chain provides far too many opportunities for ethical breaches. When ethics was a procurement-based problem, there was a procurement-based solution through training, education and enforcement. But now far too many hands are in the supply management process, making it difficult to keep ethical breaches at bay, no matter how often employees sign their annual ethics statement.