Chapter 19
Ethics and Social
Responsibilities
Case study
19-1
Case study question of ethics
Stacy - director of SM at FEC (Fremont Equipment Company)
Mandy - sales rep (Coastal Lubricants) party invitation to Stacy + 21 staff
FEC purchases $1 million based on competitive bidding.
Invitation list:
SM, assistant, 3 buyers
plant manager, assistant
chief design engineer, section heads
maintenance superintendent, foreman
production manager assistant
controller, assistant, sales manager, IR manager
Ethical Questions:
Accept? Reject? Any stipulations?
Company policies?
Accountability?
Responsibility?
Response to invitation?
19-2
Difference between an ethical man and a moral
man?
An ethical man is ethical in how he
conducts his life and his business affairs.
A moral man knows right from wrong and
chooses right.
There is a crime behind every great fortune
19-3
Key Concepts
Ethics Defined
Ethics in the Supply Management Context
Professional Purchasing and Supply Management Ethics
Principles and Standards of Purchasing and supply
Management Practice
Management Responsibilities
Written Standards
Legal implications?
Ethics Training and Education
Departmental Environment
Miscellaneous Factors
Dealing with Gray Areas
The Four Way Test
Social Responsibilities
19-4
Ethics in Supply Management
Ethics are the guidelines or rules of conduct
by which we aim to live
Does running an ethical operation yield
positive results for a company?
A literature review of papers investigating
whether increased social responsibility
results in favorable financial performance
found:
33 studies showing a positive relationship
5 studies showing a negative relationship
14 showing no effect or inconclusive results
19-5
Survey of 4,035 Employees Across a Variety of
Industries ( 2007 )
97% said good ethics are good business
67% said that ethical conduct isnt rewarded
in American business
82% believe that managers generally choose
bigger profits over doing whats right
25% said their companies ignore ethics to
achieve business goals
33% reported that their superiors had
pressured them to violate company rules
19-6
Professional Supply Management Ethics
The pressures that the marketplace exerts on
supply management departments and on
individual buyers make it essential that top
management and supply management
recognize and understand both the
professional and ethical standards required in
the performance of their duties
19-7
Principles of Supply Management Practice
1. Loyalty To Your Organization
2. Justice To Those With Whom You Deal
3. Faith In Your Profession
From these principles are derived 12
standards of supply management practice
Knowledge of existing governance!
19-8
Twelve Standards
1. Ethical Perceptions
8. Governing Laws
2. Responsibilities to
the Employer
9. Small, Disadvantaged,
and Minority Owned
Businesses
3. Conflict of Interest
4. Gratuities
5. Confidential
Information
6. Treatment of
Suppliers
7. Reciprocity
10. Personal Purchases
for Employees
11. Responsibilities to the
Profession
12. Global Supply
Management
19-9
1. Ethical Perceptions
Avoid the intent and appearance of
unethical or compromising practice in
relationships, actions, and communications.
Reference to case study?
Should Stacey : reject, accept invitation or put conditions?
19-10
2. Responsibilities to the Employer
Demonstrate loyalty to the employer by diligently
following the lawful instructions of the employer, using
reasonable care and only the authority granted.
Who then becomes accountable? Legally and morally?
19-11
3. Conflict of Interest
Refrain from any private business or
professional activity that would create a
conflict between personal interests and
the interests of the employer.
19-12
4. Gratuities
Refrain from soliciting or accepting money,
loans, credits, or prejudicial discounts,
and the acceptance of gifts, entertainment,
favors, or services from present or
potential suppliers that might influence, or
appear to influence, supply management
decisions
Declare to your superiors!
19-13
Guidelines in Dealing with Gratuities
Business Meals
Occasionally appropriate
For specific business purpose
Frequent meals same supplier should be avoided
Attempt pay for meals as frequently as the supplier
Global Supply Management
Foreign cultures, special circumstances
Reciprocal gift giving of nominal value
Careful evaluation of nominal value
Reference to case study?
Should Stacey : reject, accept invitation or put conditions?
19-14
5. Confidential Information
Handle confidential or proprietary
information belonging to employers or
suppliers with due care and proper
consideration of ethical and legal
ramifications and governmental
regulations
19-15
Examples of Confidential Information
Collusion anti-competitive behaviour
Pricing and cost date
Bid or quotation information
Formulas and process information
Design information (drawings, blueprints, etc.)
Company plans, goals, strategies, etc.
Personal information about employees or trustees
Supply sources and supplier information
Customer lists and customer information
Computer software programs
19-16
6. Treatment of Suppliers
Promote positive supplier relationships
through courtesy and impartiality in all
phases of the supply management cycle.
Supplier development??
Reference to case study?
Should Stacey : reject, accept invitation or put conditions?
19-17
7. Reciprocity
Refrain from reciprocal agreements that
restrain competition
Anti-competitive behaviour
19-18
8. Governing Laws
Know and obey the letter and spirit of laws
governing the supply management
function, and remain alert to the legal
ramifications of supply management
decisions
By attending the party, is any law broken (legal)?
Difference between moral and legal?
19-19
Key Laws and Regulations in Australia
Commonwealth Legislation such as the Criminal Code Act
1995, Public Service Act 1999, Commonwealth Electoral Act 1918,
Financial Management and Accountability Act 1997, Freedom of
Information Act 1982, Corporations Act 2001, Proceeds of Crime Act
2002 and the Mutual Assistance in Criminal Matters Act 1987
the work of various Government bodies such as the Attorney-Generals
Department, Australian Federal Police, Australian Crime Commission,
Australian Securities and Investment Commission, Australian Public
Service Commission and the Australian Transaction Reports and
Analysis Centre
procedural safeguards, auditing government agencies by the
Australian National Audit Office and public budget statements
self regulation, the Australian Stock Exchanges voluntary Corporate
Governance Guidelines, and
cooperation with regional and international authorities.
19-20
[Link]
19-21
[Link]
19-22
Key Laws and Regulations in the USA
Uniform Commercial
Code
The Federal Acquisition
Regulations
The Sherman Act
The Defense
Acquisition Regulations
The Clayton Act
The Robinson-Patman
Act
The Federal Trade
Commission Act
Patent, Copyright, and
Trademark Laws
OSHA, EPA, and EEOC
Laws
Foreign Corrupt
Practices Act
19-23
9. Small, Disadvantaged, and Minority Owned
Businesses
Encourage all segments of society to
participate by providing access for small,
disadvantaged, and minority-owned
businesses.
19-24
10. Personal Purchases for Employees
Discourage supply managements
involvement in employer-sponsored
programs of personal purchases that are
not business related
19-25
Recommended Guidelines for Personal
Purchases for Employees
Avoid using an employers purchasing
power for special purchases
Make certain of fair arrangements for
personal purchase programs
Use caution to ensure that employersponsored programs do not force special
concessions on the supplier
Suppliers should be made aware that such
purchases are not for the employer, but for
the firms employees
19-26
11. Responsibilities to the Profession
Enhance the proficiency and stature of the
supply management profession by
acquiring and maintaining current
technical knowledge and the highest
standards of ethical behavior.
Professional integrity
Reference to case study?
Should Stacey : reject, accept invitation or put conditions?
19-27
12. Global Supply Management
Conduct international supply management
in accordance with:
the laws, customs, and practices of foreign
countries,
consistent with your countrys laws,
your organizations policies,
and these Ethical Standards and Guidelines
19-28
Important Areas Requiring Amplification
Avoid Sharp Practices
Competitive Bidding
Negotiation
Samples
Treating Salespeople with Respect
Substandard Materials and Services
Gifts and Gratuities
19-29
Avoid Sharp Practices
Evasion and indirect misrepresentation
Just short of actual fraud ( scam )
Sharp practices focus on short-term gains
and ignore the long-term implications for a
business relationship
19-30
Examples of Sharp Practices
A supply manager talks in terms of large
quantities to encourage a price quote on that
basis
A large number of bids are solicited in hope that
the buyer will be able to take advantage of a
quotation error
Bids are obtained from unqualified suppliers that
the supply manager would not patronize in any
case
A supply manager who places in competition the
prices of seconds, odd lots, or distress
merchandise misrepresents a market
19-31
Examples of Sharp Practices
An attempt is made to influence a seller by leaving
copies of bids, or other confidential
correspondence, where a supplier can see them.
A concession may be forced by dealing only with
hungry suppliers
Obscure contract terms of benefit to the supply
managers firm are buried in the small type of
contract articles
A supply manager may take advantage of a
supplier who is short of cash and who may seek
only to cover his/her out-of-pocket costs
19-32
Sharp practices example
[Link]
19-33
University of Queensland Law Journal Vol.29/2
19-34
19-35
Competitive Bidding
Invite only firms to whom they are willing to
award a contract to submit bids.
Normally, award the contract to the lowest
responsive, responsible bidder.
Keep competitive price information
confidential.
Notify unsuccessful bidders promptly so
that they may reallocate reserved
production capacity.
Reference to case study?
Should Stacey : reject, accept invitation or put conditions?
19-36
Competitive Bidding
Treat all bidders alike.
Do not accept bids after the announced bid
closing date and time.
Do not take advantage of apparent
mistakes in the suppliers bid.
Do not shop or conduct auctions for low
prices.
Reference to case study?
Should Stacey : reject, accept invitation or put conditions?
19-37
Negotiation
A professional should maintain high ethical
standards, such as:
Competitors are informed of the factors that will
be involved in source selection.
All potential suppliers are given equal access to
information and are afforded the same
treatment.
Supply professionals strive to negotiate terms
that are fair to both parties
Do not take advantage of mistakes in the
suppliers proposal
19-38
Samples
Many potential suppliers offer, even push,
the acceptance of samplesJust try it
and see if it doesnt do a superior job for
you
When a sample is accepted, supply
professionals ensure that appropriate tests
are conducted in a timely manner
19-39
Treating Salespeople with Respect
Appointments with salespeople should be
meticulously kept
A mutually effective policy is for supply
management personnel to see every
salesperson on his or her first call
19-40
Substandard Materials and Services
Two proprieties:
The supplier should be given prompt notice.
The appropriate supply manager should
conduct negotiations for adjustments with the
appropriate sales personnel in the suppliers
organization.
19-41
Gifts and Gratuities
Theres No Such Thing as a Free Lunch
A minority of supply professionals feel that any
form of gratuity constitutes a conflict with
ethical standards
Traditional Sales Techniques
The majority consider many of the gifts and
gratuities to be traditional sales tools
Cultural Ramifications
19-42
Management Responsibilities
Written Standards + policies
Ethics Training and Education
Departmental Environment org culture
Miscellaneous Factors safeguards, audits
19-43
Dealing with Gray Areas
Ethical obligations to :
Employer - loyalty
Suppliers equitable and fair
Colleagues reputation of profession
19-44
The Four Way Test
Is it the TRUTH?
Is it FAIR to all concerned?
Will it build GOODWILL?
Will it be BENEFICIAL to all concerned?
19-45
Social responsibilities
Supplier diversity
Helping the community
Safety for all
Human rights child/slave labour
WEEE
19-46
WEEE
The EU Directive of the EU Parliament and
Council on Waste Electrical and Electronic
Equipment
The Directive imposes obligations for
the collection; treatment; disposal
and financing of WEEE - from users in
households (or in some countries
defined as consumer type of
products), likely to end into municipal
waste streams - and from other than
household users (typically commercial
customers).
19-47
Concluding Remarks
If you were to write your own obituary,
what would it say?
How did you treat other people?
Did you touch the lives of others?
What would you want it to say about your
ethics?
Now think about this:
You are writing your obituary each day of your
life by the way you choose to live
19-48
Case study A question of ethics?
Stacy - director of SM (Fremont Equipment Company)
Mandy - sales rep (Coastal Lubricants) party invitation to Stacy + 21 staff
FEC purchases $1 million yearly based on competitive bidding.
Invitation list: SM, assistant, 3 buyers
plant manager, assistant
chief design engineer, section heads
maintenance superintendent, foreman
production manager assistant
controller, assistant, sales manager, IR manager
Ethical Questions:
Reject?
Accept?
Responsibility?
Any stipulations?
Accountability?
Company policies?
Response to invitation?
19-49
?
19-50