19-1 McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

19-2 Chapter 19 Ethics and Social Responsibilities

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 »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 97% said good ethics are good business 67% said that ethical conduct isn’t rewarded in American business 82% believe that managers generally choose bigger profits over “doing what’s 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

19-8 Twelve Standards 1.Ethical Perceptions 2.Responsibilities to the Employer 3.Conflict of Interest 4.Gratuities 5.Confidential Information 6.Treatment of Suppliers 7.Reciprocity 8.Governing Laws 9.Small, Disadvantaged, and Minority Owned Businesses 10.Personal Purchases for Employees 11.Responsibilities to the Profession 12.Global Supply Management

Ethical Perceptions Avoid the intent and appearance of unethical or compromising practice in relationships, actions, and communications.

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.

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.

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

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

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 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

Treatment of Suppliers Promote positive supplier relationships through courtesy and impartiality in all phases of the supply management cycle.

Reciprocity Refrain from reciprocal agreements that restrain competition

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

19-19 Key Laws and Regulations in the USA Uniform Commercial Code The Sherman Act The Clayton Act The Robinson-Patman Act The Federal Trade Commission Act The Federal Acquisition Regulations The Defense Acquisition Regulations Patent, Copyright, and Trademark Laws OSHA, EPA, and EEOC Laws Foreign Corrupt Practices Act

Small, Disadvantaged, and Minority Owned Businesses Encourage all segments of society to participate by providing access for small, disadvantaged, and minority-owned businesses.

Personal Purchases for Employees Discourage supply management’s involvement in employer-sponsored programs of personal purchases that are not business related

19-22 Recommended Guidelines for Personal Purchases for Employees Avoid using an employer’s purchasing power for special purchases Make certain of fair arrangements for personal purchase programs Use caution to ensure that employer- sponsored 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 firm’s employees

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.

Global Supply Management Conduct international supply management in accordance with: »the laws, customs, and practices of foreign countries, »consistent with your country’s laws, »your organization’s policies, »and these Ethical Standards and Guidelines

19-25 Important Areas Requiring Amplification Avoid Sharp Practices Competitive Bidding Negotiation Samples Treating Salespeople with Respect Substandard Materials and Services Gifts and Gratuities

19-26 Avoid Sharp Practices Evasion and indirect misrepresentation Just short of actual fraud Sharp practices focus on short-term gains and ignore the long-term implications for a business relationship

19-27 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

19-28 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 manager’s 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

19-29 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.

19-30 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 supplier’s bid. Do not “shop” or conduct auctions for low prices.

19-31 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 supplier’s proposal

19-32 Samples Many potential suppliers offer, even push, the acceptance of samples—”Just try it and see if it doesn’t do a superior job for you” When a sample is accepted, supply professionals ensure that appropriate tests are conducted in a timely manner

19-33 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

19-34 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 supplier’s organization.

19-35 Gifts and Gratuities “There’s 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 gifts and gratuities to be traditional sales tools Cultural Ramifications

19-36 Management Responsibilities Written Standards Ethics Training and Education Departmental Environment Miscellaneous Factors

19-37 Dealing with Gray Areas Employer Suppliers Colleagues

19-38 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?

19-39 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