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Does commoditization undermine ethics?

June 25, 2015

It is often thought that unethical behavior is driven by the profit motive and is therefore largely the result of sales practices. However, might it not be that it is aggressive cost controls that undermine ethics?

From an industry perspective, the retail sector frequently takes the spotlight for its trading practices. Unrelenting price competition translates into regular mistreatment of the supply base – withheld payment, onerous claw-backs and, until recently, unprincipled labor practices appear endemic to consumer-facing companies.

IACCM’s recent study of payment terms discovered almost 20% of large corporations operate with payment terms of 90 days or more and most of these are in the consumer / commodity sector. The smaller the supplier, the harder it is to get paid. It seems that muscles count when it comes to fair or ethical treatment.

Many sales negotiators complain about the lack of balance in buyer attitudes. A failure to consider value, or to question the longer-term impact of their actions. seems to impact the procurement agenda. But of course, those buyers are only responding to the demands of senior management, especially the CFO.

For years, procurement groups have been encouraged to commoditize every purchase. They try to unbundle supply proposals in order to drive the lowest price. They also work to allocate maximum risk onto the supplier and to minimize their own commitments. Such attitudes rapidly lead to questionable ethical standards – and a by-product is often that the supplier also cuts corners or drives similar practices into their supply base.

So at a time when procurement is pushing issues of sustainability and compliance, it should perhaps also consider the extent to which its own actions may reflect the very behaviors that it is seeking to eliminate.

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