Ethics in purchasing

Although purchasing has developed the method of science over a period of time, its decisions remain largely a matter of personal judgment and it is necessarily carried on to a great extent, through personal contacts and relationships.

The Purchasing manager is the custodian of company funds, responsible for their conservation and wise spending. Moreover, through his contacts and dealings with vendors, he is a custodian of the company’s reputation for courtesy and fair dealing.

Ethics is probably the only topic in Materials management which receives wide publicity. Newspapers and magazines devote space and the Parliament allots considerable time on the coverage and discussion of ethics involved in placing orders with a foreign company for purchasing defense equipment. The Bofors gun deal and the alleged kickbacks received by middleman through the deal and the debate and discussion generated on the issue are well known to all of us.

It is true, that, the average professionals buyers and materials managers probably have higher moral standards than most of their fellow citizens. But they are also subjected to more temptations. Buyers spend millions of dollars of their employers’ money each year. As a result, they yield tremendous power and are the objects of considerable attention from suppliers. They are in an excellent position to be dishonest if they want to. Buyers can bluntly demand-kickbacks and other favors from suppliers. Sometimes, they can almost make themselves millionaires until they are caught.

Meaning of Ethics

Ethics is a segment of philosophy concerned with values of human conduct. The term ethics refers to a code of conduct that guides an individual in dealing with others. Ethics relates to the social rules that influence people to be honest in dealing with others.

Ethical rules differ from legal rules. Ethical rules are not enforced by public authority, while legal rules are enforced. Similarly, there is difference between internal and external ethics. With reference

to the former, a manager must be honest with oneself since one’s greatest asset is one’s character. One should also be honest and straight forward with others, treating them in the same manner in which one wishes in which to be treated. External ethics refers to dealing with outsiders like suppliers, consumers, government agencies, and other enterprises.

There is also a distinction between business ethics and personal ethics. Personal ethics evolves as a result of consumers of business practices and policies. Personal ethics has its source in a man’s religion and philosophy of life. The discussion here mainly centers on external business ethics and social rules. Internal and personal ethics and legal rules, though equally significant, are not emphasized.

Code of Ethics

Purchasing people must be above the suspicion of unethical behavior at all times and under all circumstances. To do this requires strict adherence to a sound code of ethics. Such a code has been developed by the Indian Institute of Materials Management. The code is as follows:

1. To consider first the total interest of one’s organization in all transactions without impairing the dignity and responsibility to one’s office.

2. To buy without prejudice, seeking to obtain the maximum ultimate value for each rupee of expenditure.

3. To subscribe and work for honesty and truth in buying and selling, to denounce all forms and manifestations of commercial bribery and to eschew anti-social practices.

4. To accord a prompt and courteous reception so far as conditions will permit, to all who call upon legitimate business missions.

5. To respect one’s obligations and those of one’s organization consistent with good business practice.

The ultimate act of selecting a vendor and awarding the order is essentially a matter of patronage. For these reasons, a high ethical standard of conduct is essential. The Purchasing officer not only must act ethically, but he should be above the suspicion of unethical behavior.