Unit 1

SUPPLIER MANAGEMENT &

PROCUREMENT MORAL
PRINCIPLES
Outlines

1.1 Supplier Partnership and Development

A. Importance of Supply Chain Partnership
B. Early Supplier Involvement and Supplier
Development
C. Challenges in Controlling Procurement Performance

1.2 Purchasing Ethics, Purchasing Social Responsibility

and Environmental Purchasing
Unit Objectives

 To understand the potential benefits of supplier

partnerships
 To identify some of the environmental concerns for
organisations in managing their supply chains
 To explain the challenges of procurement performance
measurement and basic approaches to procurement
control
 To understand the need to observe moral principles for
procurement professionals, and how these impact the
procurement activities
Unit 1.1

Supplier Partnership
and Development
By the end of this section, you should be able to:

 Describe the elements of supply chain

partnership and the potential benefits of
supplier partnerships

 Identify the goals of early supplier involvement

and the process of supplier development

 Identify problems and various performance

factors for appraising and controlling
procurement effectiveness
A. IMPORTANCE OF SUPPLY CHAIN
PARTNERSHIP

 The continuum of inter-firm relationships shown in

Figure 1.1.

 2 guiding key concepts within a partnership:

interdependence and synergy

 Benefits of Supplier Partnerships

 Risks of Supplier Partnership

 Partnership Implementation
B. EARLY SUPPLIER INVOLVEMENT AND
SUPPLIER DEVELOPMENT

 The opportunity to affect value in the acquisition process

is significantly greater in the early stages (need
recognition and description) than in the later ones

 Variety of activities including sharing technology,

providing incentives to suppliers for improved
performance, promoting competition among suppliers,
providing necessary capital and directly involving its
personnel with suppliers through activities such as
training and process improvement
B. EARLY SUPPLIER INVOLVEMENT AND
SUPPLIER DEVELOPMENT

 Successful supplier development requires a strong,

collaborate relationship and mutual commitment between
the parties

 Direct involvement in a supplier’s operations by buyer

personnel is undoubtedly the most challenging part of any
supplier development process

 Table 1.2 summarized some of the common barriers,

categorized internal, external and interface based, to
supplier development
B. EARLY SUPPLIER INVOLVEMENT AND
SUPPLIER DEVELOPMENT

 Figure 1.2 depicts a generic process map for deploying a

supplier development initiative.

 Supplier development plays a major role in helping

creating sustainable competitive advantage while aligning
supply management and business goals

 The long-term objective, of course, is to transform

suppliers in such a way that continuous improvement
becomes an integral part of each supplier’s culture and
DNA

 Not all organisations must pursue supplier development.

C. CHALLENGES IN CONTROLLING
PROCUREMENT PERFORMANCE

Reasons for measuring and evaluating procurement activity

and performance:

 Support better decision making.

 Support better communication.

 Provide performance feedback.

 Motivate and Direct Behavior.

B. CHALLENGES IN CONTROLLING
PROCUREMENT PERFORMANCE

 Problems and limitations:

o Too much data and wrong data

o Measures that are too short-term focused
o Data reported meaningless and lack of detail
o Measures driving the wrong performance
o Measures of behavior versus accomplishments with
no guarantee the behavior will lead to desired results

 Problems with Controlling Procurement Performance -

Examples
B. CHALLENGES IN CONTROLLING
PROCUREMENT PERFORMANCE

3 different types of assessments:

1. A qualitative assessment of a number of broad

management responsibilities – a managerial
review

2. An appraisal of buying effectiveness

3. An assessment of procurement efficiency

B. CHALLENGES IN CONTROLLING
PROCUREMENT PERFORMANCE

1. Appraising Managerial Performance

o Scope of the procurement function.

o Evaluation of procurement executive personnel.
o Organisation
o Personnel
o Policies.
o Procedures.
o Records and Reports
B. CHALLENGES IN CONTROLLING
PROCUREMENT PERFORMANCE

2. Controlling Buying Effectiveness

o Controlling the Timing Factor

o Controlling Quantity and Inventory Investment
o Controlling Price Paid for Materials
o Controlling Material Quality
o Controlling Source Reliability
o Controlling Supplier Relations
o Controlling Internal Coordination
B. CHALLENGES IN CONTROLLING
PROCUREMENT PERFORMANCE

3. Controlling Procurement Efficiency

o Workload Measurements

o Departmental Operating Cost Measurements

o Social Responsibility Measurements

o General Information
B. CHALLENGES IN CONTROLLING
PROCUREMENT PERFORMANCE

Guidelines for Development and Use of Measurement and

Control Systems:

 A tool of good management – not a substitute for it.

 Designed to support the individual buyer in doing a

better job, with buyer’s participation

 The degree of sophistication based on the specific

needs of the organisation.

 The cost be balanced against the management value of

its output.
B. CHALLENGES IN CONTROLLING
PROCUREMENT PERFORMANCE

 The measurements of efficiency and effectiveness must

be separated.

 A small number of precise measures

 Past performance provides information and experience

that can be used for improvement in the future.

 The most effective systems are found in an environment

that provides a positive stimulus for the buyer to use the
output of the system constructively.
Unit 1.2
Purchasing Ethics,
Purchasing Social
Responsibilities and
Environmental
Purchasing
By the end of this section, you should be able
to:

 Identify the types of unethical procurement

behaviors and the associated risks

 Recognize the dimensions and activities of

purchasing social responsibility

 Identify procurement activities’ environmental

concerns
A. PURCHASING ETHICS

 A highly competitive market economy with emphasis on

results

 Pressure for sales, pressure to compromise, pressure to

succeed in an environment of both internal and external
competition, and pressure resulting from government
mandates.

 The pressures which the marketplace exerts on

procurement functions and individual buyers make it
essential to recognize and understand both the
professional and ethical standards required in the
performance of their duties.
A. PURCHASING ETHICS

 Ethical Rules and Challenges: General rules guiding

ethical procurement behavior

 Procurement professionals, more than any other group

within a firm, experience enormous pressure to act in
unethical ways.

 Risk of Unethical Behavior: legal penalty, professional

reputation risk, personal financial bankruptcy or even
jail sentences, risk to a firm’s reputation etc
A. PURCHASING ETHICS

Types of Unethical Procurement Behavior:

 Sharp Practices
 Unethical Competitive Bidding
 Unethical Negotiation
 Personal Buying
 Presale Engineering Work
 Financial Conflicts of Interest
A. PURCHASING ETHICS

 Supporting Ethical Behavior :

 Developing a statement of ethics

 Top Management Commitment
 Team Approach to Supplier’s Evaluation.
 Ethics Training
 Developing Consistent Behavior
 Internal Reporting of Unethical Behavior
 Preventive Measures
B. CORPORATE SOCIAL RESPONSIBILITY AND
PURCHASING SOCIAL RESPONSIBILITY

 Corporate social responsibility is a business

commitment to contribute to sustainable
economic development, working employees, their
families, the local community, and society at large
to improve quality of life (WBCSD)

 Purchasing social responsibility is the

involvement of purchasing functions in corporate
social responsibility. It also involves how
purchasing works together with suppliers to
achieve the social responsibility in supplier side.
B. CORPORATE SOCIAL RESPONSIBILITY AND
PURCHASING SOCIAL RESPONSIBILITY

Components of Purchasing Social Responsibility

 Diversity in sourcing
 Environmental procurement
 Safety working conditions at suppliers’
side
 Human right issue and fair working
condition at supplier side
 Philanthropic and community service
B. CORPORATE SOCIAL RESPONSIBILITY AND
PURCHASING SOCIAL RESPONSIBILITY

Programmes or activities of Purchasing Social

Responsibility
 Supplier selection based on environmental effort and labour
issues
 Survey and audits based on social responsibilities
components
 Training, development and information sharing with
suppliers on social responsibility
 Incentives to suppliers in contract extension or enlarged
purchase orders granted to suppliers based on social
responsibility achievement
 Social responsibility effort to be incorporated in purchasing
contracts with suppliers
C. ENVIRONMENTAL PURCHASING

ISSUES

 How can our organisational design products and services

that directly or indirectly contribute to sustainability?

 How can our organisation purchase materials, products or

equipment that directly or indirectly contribute to
sustainability?

 How can we purchase from sources, domestic or

international that we know are committed to sustainability
and sound practices?
C. ENVIRONMENTAL PURCHASING

 Strategic supply management is all about maximizing

opportunities and minimizing risks.

 In the area of environmental impact and sustainability,

there are many opportunities for procurement
management who are at the forefront of environmental
awareness.

 By being ahead of, rather than behind, legislative

requirements, opportunities to tap government financial
support and public recognition for innovative experiments
exist.
C. ENVIRONMENTAL PURCHASING

Environmental purchasing strategies range from merely

trying to avoid violations to, including environmental
considerations from the design stage forward.

 Source reduction – design or use less

 Reuse – multiple use of same item such as a package or
container
 Recycle – reprocess into raw material
 Incinerate – at least extract energy but creates CO2
pollution at a minimum
 Landfill – require space and transportation to store with
potential impact on land and water
Conclusion

• Supplier management and development constitute the new

module of supply management - to maximize the
contribution received from supplier, lowering costs,
increasing quality and developing future capabilities.

• Control of the procurement function has become even

more important than it was previously. Evaluation and tight
procurement control an absolute essential for many
organisations.

• Most firms now have a computer-based information

system for their procurement operations - for more
thorough and less expensive control