ETHICS AND

E-PROCUREMENT
MODULE 6
What is Ethics?
◦ The guidelines or rules of conduct by which we aim to live
◦ It is a set of rules and standards governing professional conduct
◦ It embraces the moral qualities of action or behavior of a person
Legal, Ethical, Moral
◦ Legal
◦ Permitted by law
◦ Not against the law
◦ Ethical
◦ Being in accordance with the rules and standards for right conduct or
practice
◦ Abide by standards that are set
◦ Moral
◦ Founded on the fundamental principles of right conduct rather that on
legalities, enactment or custom
Ethics and Procurement
◦ Ethical dilemmas have been with Purchasing since the beginning of this
function and will be with Purchasing throughout its life span
◦ The Purchasing function is considered to be the most sensitive function in any
organization and is exposed to a very high degree of temptation from many
external factors outside the organization
◦ In general, purchasing people are unreasonably branded as suspects for
unethical practices
◦ Since purchasing people are involved in the buying function, they are
constantly subjected to many temptations and offers
Exercise

◦List down at least three issues

/concerns about current purchasing
practices that you think may not be
ethical
Buying and Selling Standards according to
PISM (Phil. Institute of Supply Management)
To buy and sell on the basis of value, recognizing that value represents that
combination of quality, service and price which assures greatest ultimate quality to the
user
To respect obligations and neither, expressly nor by implication to promise a
performance which one cannot reasonably expect to fulfill
To avoid misrepresentation and sharp practices in purchases and sales, recognizing
that business relations can be maintained only on structure of honesty and fair dealing
To be courteous and considerate of those with whom we deal
To avoid statements tending to injure or discredit a legitimate competitor, and to
divulge no information acquired in confidence
To recognize that character is the greatest asset in commerce, and to give it a
major consideration in the selection of customers and sources of supply
To adjust claims and settle disputes on the basis of fact and fairness, to submit
the facts to arbitration, if mutual agreement cannot be reached, to abide by
the decision and to resort to legal measures only as last resort
To provide and accept no gifts or entertainment in the guise of sale expense,
where the intent is to unduly prejudice the recipients in favor of the donor as
against legitimate competitors
To give or receive no bribes, in the form of money or otherwise, in any
commercial transaction and to expose commercial bribery whenever
encountered for the purpose of maintaining the highest standard of ethics in
business
Ethical Issues in Purchasing
Loyalty to Employer Competitive Bidding
Gifts and Gratuities Negotiation
Conflict of Interest Substandard Materials
Fairness and Services
Avoiding Sharp Treating Sales People
Practices with Respect
Loyalty to Employer
◦ It is the duty of the
purchasing
professional to ensure
that actions taken as
an agent for the
employer will benefit
the best interest of the
employer to the
exclusion of personal
gain
Gifts and Gratuities
◦ People engaged in purchasing
and their immediate members of
the family should not accept from
any supplier or prospective
supplier any money gift or favor
which might influence or be
suspected of influencing their
buying decision
◦ Guidelines on Gifts and
Gratuities
◦ Business Meals Guidelines
Conflict of Interest Situations
◦ Company in which the purchasing
agent or members of the family or
relative own substantial stocks or
interest
◦ Company in which the purchasing
agent has investments as
custodian, executor or trustee for a
third party or parties
Fairness
◦ A buyer must buy without
prejudice, meaning that the
buyer should maintain an
open mind and be objective
on all purchasing matters
Sharp Practice
◦ An evasion and indirect
misrepresentation, just
short of actual fraud
that focuses on short-
term gains and ignore
the long-term
implications for a
business relationship
Competitive Bidding
◦ To maintain the integrity of competitive bidding process
◦ Invite only firms to whom they are willing to award a contract to submit bids
◦ Normally, award contracts to the lowest responsive, responsible bidder
◦ Keep competitive price information confidential
◦ Notify unsuccessful bidders promptly so that they may reallocate reserved
production capacity
◦ 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
Negotiation
◦ Maintaining high ethical standards during
negotiation
◦ Competitors are informed of the
factors which will be involved in source
selection
◦ All potential suppliers are given equal
access to information and are afforded
the same treatment
◦ Buyer strive to negotiate terms that are
fair to both parties and not take
advantage of mistakes in the seller’s
proposal
Substandard Materials and Services
◦ The following should be observed
when substandard materials and/or
services are received:
◦ The supplier should be given prompt
notice
◦ Negotiations for adjustments should
be carried out by the appropriate
purchaser with the appropriate sales
personnel in the supplier’s
organization
Treating Salespeople with Respect
◦ Sales people should not be kept waiting for
protracted periods of time, appointments should be
meticulously kept
◦ The power that is attached to the patronage position
of a buyer must not be abused so that the long run
interests of the buyer’s company will be advanced
◦ A mutually effective policy is for purchasing
personnel to see every salesperson on his or her first
call
◦ The appropriateness of follow-up visits should be
determined by the potential strength of the buyer’s
need for the supplier’s product
Historical Context of E-procurement
E-PROCUREMENT
◦ Electronic procurement, or e-procurement, is the business to
business (B2B) process of requisitioning, ordering, and purchasing
goods and services over the internet.
◦ At the enterprise level, a chief procurement officer (CPO) or
official procurement department will set the policies for procuring
goods and services for the business, with the goal of acquiring
what the business needs at the best possible price or with the
greatest value at the time it’s needed.
Benefits of E-Procurement
◦ Automatic order processing with electronic POs and electronic invoicing makes it faster to do business,
so it costs less.
◦ Improved workflow in the internal procurement process.
◦ Improvement in supply chain mechanisms offer mutual benefit for everyone using the e-procurement
system.
◦ Connected to external supply chains so you can share real-time information for enterprise resource
planning (ERP) purposes and supply chain management
◦ Knowledge of your purchasing process and increased spend visibility for better spend management and
easier identification of cost savings opportunities.
Some internet tools and platforms that
replace traditional procurement include:

◦ E-sourcing
◦ E-tendering
◦ E- auctioning
◦ E-ordering and web-based ERP
◦ E-information
◦ E-sourcing
◦ E-sourcing supports the specification phase; it can be used to pre-qualify suppliers and also identifies
suppliers that can be used in the selection phase. For suppliers the benefit is: “marketing” and for the
buying organizations the benefit is facilitating the sourcing of suppliers. The UN Global Market Place
(UNGM www.ungm.org) is an example of an E-sourcing tool.

◦ E-tendering
◦ E-tendering supports the selection stage and acts as a communication platform between the procuring
organization and suppliers. It covers the complete tendering process from RFP to contracting, usually
including support for the analysis and assessment activities;
◦ it does not include closing the deal with a supplier but facilitates a large part of the tactical
procurement process. It results in equal treatment of suppliers; transparent selection process; reduction in
(legal) errors; clear audit trial; more efficiency in the tactical procurement process and improved time
management of tendering procedures.
◦ E-auctioning
◦ E-auctioning supports the contract stage. It enables the closing of a deal with a supplier if parties agree
on price. They operate with an upward or downward price mechanism e.g. e-auctioning with upward
price mechanism for the selling organization and e-reverse auctioning with a downward price
mechanism for the buying organization.
◦ They can be made in accordance with traditional ITB/RFP. They are internet based using open or closed
systems.

◦ E-ordering and web-based ERP

◦ E-ordering and web-based ERP is the process of creating and approving procurement requisitions,
placing purchase orders, as well as receiving goods and services ordered, by using software systems
based on the Internet.

◦ E-informing
◦ E-informing is not directly associated with a stage in the procurement process; it is the process of
gathering and distributing procurement information both from and to internal and external parties using
Internet technology.
E-procurement in the procurement cycle
The figure below shows the six forms of e-
procurement plotted in the procurement
process
E-procurement strategy – costs, benefits and
risks
The following costs and benefits as identified by de Boer, Harink et al. (2002), can be influenced by e-
procurement:
◦ The cost of expenditure on goods/services related directly to the production/service delivery.
◦ The cost of non-production of goods and services.
◦ The cost of operational procurement activities – e.g., requisitioning, ordering, expediting and
administrative support.
◦ The cost of tactical procurement activities – e.g., formulating specifications, selecting suppliers,
negotiating with suppliers, contracting, disposals etc.
◦ The costs of strategic procurement activities – e.g., spend analysis, transaction analysis, market analysis,
planning, developing procurement policies etc.
 Benefits
◦ Particular benefits of e-procurement in the
public sector are thought to include
◦ greater transparency in procurement
through electronic publishing of tender
notices and contract awards.
◦ This in turn is likely to enhance
accountability and reduce the instances of
corruption.
Risks
◦ The implementation of e-procurement tools carries certain risks.
◦ One of the primary risks is missing opportunities to implement strategies that
improve procurement management without the need for investment in e-
procurement. This is because many of the benefits ascribed to e-
procurement may be achieved simply by improving procurement practice.
For example, it is often said that e-procurement reduces “maverick buying”.
However, other measures, including the implementation of corporate
buying strategies that offer value for money, do not need electronic tools.
◦ Another risk is over-investment in e-procurement tools that do not deliver the
expected benefits.
◦ This risk arises when there has been inadequate evaluation of the
implications of the adoption or enhancement of e-procurement tools. The
risk that users will not accept an e-procurement tool is another common risk.
This risk often arises where users have not been adequately consulted about
the adoption or enhancement of particular tools.
◦ On the supply side, there is a risk that suppliers will not cooperate with the use
of e-procurement tools.
◦ For example, some suppliers are sufficiently powerful to insist on the use of
paper-based systems. Others may not have access to affordable internet
based technology that would give them access to the e-procurement tools
of purchasers. In markets that are already competitive with low profit
margins, suppliers may choose not to participate in e-reverse auctions.
◦ Normal methods of risk assessment and management should be applied
during the development of business cases for e-procurement development or
enhancement
Source: https://www.ungm.org/Areas/Public/pph/ch04s02.html
Assignment
◦ Research on the legal aspects of e-procurement in the Philippines.