Procurement integrity – what does it mean?

Without fundamental change to its goals and purpose, can the typical procurement function really contribute to business integrity?

One of the largest procurement associations has defined member responsibilities in the following way:

1) Enhance and protect the standing of the profession by being ethical and having integrity in all business relationships

2) Promote the eradication of unethical business practices such as infringing human rights, fraud, corruption

On the surface, these are noble aims – yet are they actually effective or relevant? To what extent are current procurement practices (and associated training) undermining the very values that lie at the heart of these responsibilities?

I write this because the common experience of most suppliers remains that Procurement practitioners are focused almost entirely on price negotiation and obtaining ‘savings’ – far too often with no regard to the impact this will have on quality and, I regret to say, integrity. I don’t question the ethics of those professionals – but I do question the judgment of organizations that measure success in such narrow terms. I also question procurement leadership that accepts such measures and does not challenge top management (especially the CFO) to monitor value achieved, not theoretical savings.

What needs to be different? First, it is the integrity of the supply base that should be of greatest concern to the procurement function. Having responsibility for personal integrity is surely a given; it is assessing and validating a supplier’s integrity and honesty that really matters in generating business results and protecting reputation. Far too often, this does not happen – and hence the concerns about human rights, fraud and corruption.

Second, and more fundamentally, seeking to maximize discount and minimize price is quite simply not compatible with the defined responsibilities. It drives unethical behavior; it favors the dishonest supplier; it encourages short-cuts and bullying in the supply chain. We see evidence of this time and again, especially in low-margin or price driven industries – for example retail, construction and the public sector. Stories such as the Taiwanese earthquake and buildings constructed with oil cans illustrate the human cost that comes with such practices.

Procurement and supply chain management are critical activities for the success of business and should indeed be major contributors to the delivery of ethics and value. But for this to have meaning, I suggest that practitioners must challenge the way they are trained and measured and re-think the role they play in developing and managing trading relationships.