Ethical procurement can be defined as the process of purchasing goods, services, or works in a responsible and sustainable manner, taking into consideration factors such as human rights, social equity, environmental impact, and economic implications.
This holistic approach to sourcing and purchasing is not merely a theoretical ideal. It’s a practical method that can bring significant benefits to a company, including improved public image, risk mitigation, and fostering sustainable growth.
Despite strides towards ethical procurement, numerous businesses still face challenges in integrating such policies effectively and at times, the consequences can be close to catastrophic. In 2020, amidst soaring demand for PPE, the UK government found itself entangled in an unlawful procurement scandal that violated the principle of equal treatment. This unfortunate incident led to an astonishing £4 billion worth of unusable PPE, eroded public trust, and inflicted considerable reputational damage on the government.
Procurement ethics should never be an afterthought. So, in light of this, is your current procurement process founded on a solid ethical base?
This guide will provide you with a roadmap that can help steer your business in the right direction.
Policy, Supervision and Systems
Establishing ethical procurement within your business starts with building solid policies, rigorous supervision processes, and robust systems. These are all separate and distinct elements, but they work best when used together.
Think of your policy as a roadmap that outlines your commitment and approach to ethical procurement. A policy will work like a guide for your employees, detailing the ‘what,’ ‘why,’ and ‘how’ of procurement ethics.
Remember that the best policies are accessible, easy to understand, and concise. On top of that, to make your procurement policy truly effective, it needs to cover all aspects of ethical procurement including common ethical challenges (such as conflicts of interest, bribery, and discrimination) and provide clear guidance on how to handle such situations.
However, even the most well-written policy is only as good as its implementation. This brings us to the second element, supervision.
Supervision serves to ensure that the policy is followed in practice, not just in theory. It involves monitoring procurement activities, providing ongoing training for staff, and holding regular audits. A practical example might involve a supervisor overseeing a procurement transaction to ensure no preferential treatment or unfair practices are being applied.
Lastly, we turn to systems, an often underestimated aspect of ethical procurement.
Systems offer a more robust safeguard. They automate and standardise the procurement process, reducing the chance of ethical lapses. A good procurement system will document every step of the process, making it easier to spot any anomalies or potential issues. Additionally, these systems allow for the separation of roles, which is a key aspect of ethical procurement. This means that the person who requests a purchase is different from the person who approves it, reducing the risk of conflicts of interest.
10 Principles to Uphold for Ethical Procurement
Embarking on an ethical procurement journey involves more than just good intentions. It calls for concrete actions, structured in a framework of key principles.
Here are 10 essential principles that can guide your organization towards a more ethical approach to procurement:
- Embracing Openness, Confidentiality, and Equality: Ethical procurement means treating all sellers fairly. Plus, sharing your procurement criteria upfront can reduce misunderstandings and disputes later on. Be clear about what you want, when you want it, and how you’ll choose who to buy from to build trust.
- Managing Power Dynamics: Misuse of buying power or influence can disrupt business relationships and breach legal regulations. Never let your power as a buyer unfairly affect your relationships with sellers, for example, by leveraging your position as a major customer and pressuring a supplier into lowering prices to a point where it becomes unsustainable for the supplier.
- Zero Tolerance for Corruption: Corruption, in any form, should not be tolerated at any stage of your procurement. Any instances of corruption should be immediately reported to maintain the integrity of your procurement practices.
- Declaration of Personal Interests: Conflicts of interest can occur in procurement. To avoid this, any personal interests that could potentially influence decision-making should be declared. If you’re deciding who to buy from, and you have a personal connection with a seller, you must let stakeholders know.
- Prioritizing Social Responsibility: Ethical procurement goes beyond business transactions to encompass social responsibility. This includes consideration of issues such as forced labour, freedom of association, health and safety, child labour, excessive work hours, and discrimination. You can read more about this here: Mastering Sustainable Sourcing
- Rejecting Forced Labor: Your suppliers should not employ forced, bonded, or involuntary prison labour. This requires clear understanding and communication about what constitutes forced labour and how it can be prevented.
- Promoting Formal Employment Relationships: Suppliers should be encouraged to establish legal employment relationships as per their national law and good practice. This could be as simple as making sure your suppliers have contracts with their staff that outline their pay and working conditions.
- Enforcing Health and Safety Standards: Your suppliers should be required to provide safe and hygienic working conditions. In places where local enforcement may be weak, you can work with suppliers to implement health and safety policies that are visible in the workplace.
- Adherence to Law: Your suppliers should always abide by the laws of their country. Any violation could have serious consequences for your business, both legally and reputationally.
- Maintaining Fair Wages and Working Hours: Ethical procurement practices call for promoting fair wages and working hours that meet or exceed industry benchmarks or national legal standards. If you’re buying cheap products, make sure the workers aren’t being exploited.
Establishing ethical procurement within your business starts with building solid policies, rigorous supervision processes, and robust systems.
Conclusion
Every organization has a unique procurement journey, but the principles of ethical procurement remain the same: fostering transparency, ensuring fair practices, and advocating for social responsibility.
When you adhere to rigorous ethical practices, treat your suppliers equitably, manage power dynamics responsibly, and promote legal and socially responsible employment practices, you will manage to enhance your company’s reputation, reduce business risks, and create valuable, long-lasting relationships with your suppliers.
