CIPS’ Emma Scott explains the importance of an ethical procurement policy and how to ensure your organisation stays on the right side of the law
Once upon a time, making a profit was the main objective for most companies. In the modern business environment, the issue of being a good corporate citizen is just as important and procurement teams are increasingly expected to embed more than just a good ROI into their processes. Ethical procurement considers not only the benefits of a purchase but also the impact on the wider world of that business and its supply chain.
The level of knowledge and implementation of ethical procurement varies greatly across sectors and businesses, according to Emma Scott, Representation Manager at CIPS. “It’s driven by customers, so there are certain industries where customers (and regulators) are highly focused on ethics, and organisations tend to have a close eye on this area,” she says. “But there are other industries where regulation isn’t as tight and you do see examples where companies are caught out.”
Supply chain stories have hit the headlines over the past few years. Rana Plaza and Kozee Sleep beds are just two examples of major brands having their names splashed across newspapers for not keeping a closer eye on their ethical and responsible procurement practices.
"It is fundamental for purchasing professionals to ensure the practices they undertake in business are above reproach "Emma Scott, Representation Manager, CIPS
“It is fundamental for purchasing professionals to ensure the practices they undertake in business are above reproach,” Scott says. “They must be aware of and look out for signs of unacceptable practices in the supply chain such as fraud, corruption, modern-day slavery, human trafficking and wider issues such as child labour.”
Rachel Norris, Vice President of Group Compliance at RS believes that ethical procurement should be a key part of every organisation’s compliance risk management strategy. “Legislation such as the Modern Slavery Act 2015 and the Bribery Act 2010 place the onus on companies to appropriately manage supply chain risks”, she explains. “In fact, for most companies, third parties pose the single biggest bribery risk.”
"If you want to be trusted, then ethical and legal standards are paramount, and they need to extend to your supply chain "Rachel Norris, Vice President of Group Compliance, RS
And it’s not just about avoiding heavy fines and other penalties that can come from compliance failures. “In today’s highly connected world, reputation is a key board-level concern” Norris says. “If you want to be trusted and seen as doing the right thing, then ethical and legal standards are paramount, and they need to extend to your supply chain.”
Modern supply chains are long, lean and operate in a highly competitive market, so working well with suppliers is a vital aspect of keeping supply chains running effectively. “Being a customer of choice makes suppliers more likely to pull out the stops in a crisis,” says Scott. “Fair, open and transparent practices from sourcing right through to payment all contribute to a happy working relationship with suppliers.”
Ethical procurement strategy
If you are addressing ethical issues in the supply chain for the first time, the sheer scale of the problems to be solved can be off-putting. Emma Scott believes it is important to devise a strategy to prioritise issues and put them in a manageable perspective:
1. Review supply chains
The first step towards creating an ethical purchasing strategy is to review your supply chains. During the supplier review stage suppliers should be reviewed for risk, regardless of whether they are direct or indirect. Human rights and employment issues can occur in categories such as cleaning, security, or even hotels that companies use for employees and events.
2. Identify problem areas
The next stage is to identify areas of risk, such as those associated with specific countries, services or production processes. By carrying out this type of assessment, you can concentrate effort in the areas of greatest risk.
3. Consult others
It may be useful to consult others buying in the same area, with a view to pooling information. Consultation with local and international experts may also be helpful at this stage, as well as with other organisations that have helped companies to implement solutions.
4. Construct strategy
Once key risks have been identified, you can construct your ethical sourcing strategy by identifying what information you will require of different suppliers, how you will review the information you receive, and which are the key risk areas to prioritise.
Keep track of indirect purchases
In some organisations, indirect purchases are carried out by non-procurement teams, and if procurement professionals aren’t guiding that process, there’s a risk that ethical procurement could fall by the wayside and you get maverick spending.
This carries a number of risks, including getting counterfeit and faulty goods, but it also means the correct policy and checks regarding ethical sourcing may not be in place. At RS, a risk-based approach is taken to reviewing suppliers for both direct and indirect spend. Staff are trained on the Code of Conduct and other policies that make clear the ethical standards expected of the business and its partners.
It’s an issue that Rachel Norris takes seriously. “Over the last year or so, we have expanded the application of our ethical supply questionnaire to include key non-stock vendors and introduced a more in-depth ethical questionnaire and approval process as part of our global freight tenders,” she says. “Our global sourcing team reviews RS Pro product vendors to verify compliance with our Group standards; these are scheduled using a risk-based approach and include visits to vendors’ premises. During the year, the employees responsible for these reviews completed ISO Lead Auditor training.”
By putting strong ethics at the heart of your organisation, and ensuring your suppliers have the same values, the risk of falling foul of the law is greatly reduced.