Ethical procurement is becoming increasingly important in our ever more complex, interconnected, and global economy. In the past, the main focus for most companies was profit, but more and more companies now understand and value ethical procurement. In this post, we explore what ethical  procurement means and why it is so important.

What is Ethical Procurement?

Ethical procurement refers to the consideration of a wide range of issues relating to the ethical and sustainability goals of an organisation. Ethical procurement is a company’s code of conduct and commitment to environmental, social and legal issues. It involves a set of principles which guide a company to proactively eliminate unethical practices throughout its supply chain. Ethical procurement requires a company to understand its societal obligations, expectations and social responsibility.

Why is Ethical Procurement Important?

In today’s society, it is just as important to be a good corporate citizen as it is to make profits. As such, today’s procurement teams must embed ethics into their processes in addition to the conventional focus on a good ROI. Of course, there is a clear intrinsic value in ethical procurement – it’s simply the right thing to do. However, there are many other reasons why it’s beneficial for a company to prioritise ethics in their procurement practices.

At the heart of ethical procurement lies trust. When a company loses trust through unethical practices, this can be very damaging in terms of public perception and customer relations. Unethical behaviour can have a substantially negative impact on business, harming profits in both the short and long term through boycotts and negative press. In addition, it can also damage supplier relationships and hinder the efficacy of the company’s procurement practices. A company in this position may struggle to attract new suppliers or gain incentives or loyalty discounts from existing ones as other businesses won’t want to associate with them. They may even find themselves being scrutinised more rigorously by compliance teams or even being rejected for funding from financial institutions.

What are the Challenges to Ethical Procurement?

It is important for procurement teams to identify the types of ethical issues they may face so they can develop ethical standards and practices. Due to the complex and interconnected nature of modern supply chains, there can be many potential challenges to ethical procurement. Some examples are:

Illegal Supply Chain Practices

This involves the purchase, whether knowingly or unknowingly, of products that have been produced by illegal or immoral means. This may include, for example, stolen goods, human rights abuses, child labour, counterfeit goods and environmental damage.

Bribery

This involves special consideration or support for certain candidates during contract negotiation or supplier evaluation in return for illicit payments or other incentives.

Coercion and Intimidation

This is when threats of harm or loss are made instead of bribes.

Extortion

This is the other side of bribery, whereby requests for money are made in exchange for favoured consideration or to prevent other forms of corruption from being exposed.

Influence Peddling

This is the practice of granting contracts to a certain supplier in return for compensation, such as special incentives or discounts. Simply speaking, in support of granting contracts to a particular supplier for these reasons is considered influence peddling.

Nepotism

This refers to the practice of giving unearned preference or advantage to suppliers because they are one’s friends or relatives.

The Importance of an Ethical Procurement Strategy

Because ethical procurement is so important these days, it’s essential for companies to develop an ethical procurement strategy. This should begin with a thorough review and risk assessment of current supply chains. From here, potential problem areas can be identified and mitigated or resolved. It’s useful to develop open dialogue and consult with others buying in the same areas so that information can be shared. Consultation with local and international experts can also be beneficial.

For ethical standards to be successful, a written, formalised policy is required. This should clearly state the expectations and obligations of staff, management and suppliers. Training around this should be given to procurement teams and managers. Mechanisms should be put in place to ensure reviews and refinements to the policy as required. This may be due, for example, to legislative changes or public awareness of or support for certain ethical issues.

In an increasingly interconnected environment, ethical procurement becomes not only more challenging but also more important than ever before. Companies that want to succeed must have a thorough understanding of ethical procurement as well as sound policies and strategies in place to ensure their procurement practices are ethical. Otherwise, the consequences could be severe.

If you are interested in taking the next step in your procurement and supply career, explore our range of CIPS qualifications or contact our team to find out more.