The Importance of Ethical Procurement Practices

Ethical procurement practices are becoming increasingly important with the growth of the global economy. More and more companies understand the value and importance of ethical procurement and switch their focus from profit maximization to the optimization of more ethical practices. 

In this article, we will cover everything regarding ethical procurement, from its importance to the best practices. So, if you are ready, let’s dive into it! 

What is Ethical Procurement? 

First, let’s clarify the concept. Ethical procurement is procurement practice that meets societal and organizational standards and expectations. It refers to a range of issues that can impact both the ethical and sustainability objectives of the business. For instance, if the suppliers are sourcing materials unethically by partnering with them, your brand’s reputation is also at stake. Thus, it is vital to incorporate ethical procurement practices. 

According to Forbes, around 88% of participants in the survey mentioned that they prioritize products from companies that implement ethical sourcing practices. These statistics showcase the vitality of ethical procurement and the public’s concern regarding it.  

To practice ethical procurement, an organization needs to have ethical policy regulations and a supplier code of conduct. Also, it is crucial to ensure suppliers’ compliance with the set policies before proceeding to sign a contract. 

Principles of Ethical Procurement 

To understand what ethical procurement is more in-depth, let’s briefly overview the general principles. 

• Maintaining high ethical standards and transparency when conducting procurement activities. 
• Making sure that all suppliers are treated fairly without favoritism or any type of discrimination. 
• Maintain integrity and avoid conflicts of interest/disclosing these when they arise. 
• Protecting the interests of both buyers and sellers. 
• Establish clear roles and responsibilities for procurement activities and hold individuals accountable for their actions. 
• Considering the environmental, social, and economic impacts of procurement activities and decisions. 
• Consistent promotion of sustainable procurement practices and prioritization of suppliers who uphold ethical standards. 
• Maintaining compliance with any relevant laws, regulations, and policies in regard to procurement activities. 
• Keeping confidentiality of sensitive information regarding the parties involved in the procurement process. 
• Upholding high professional standards. 

These are general principles of ethical procurement that help businesses uphold high standards and simply corporate social responsibility. 

Importance of Ethical Procurement 

Ethical procurement is important for several reasons. First, it allows for more sustainability. Ethical procurement encourages and promotes responsible purchasing. Thus, it also contributes to the implementation of strategies for minimizing waste, recycling materials, and others. All of these contribute to more sustainable procurement. 

Another reason that makes ethical procurement important is how it contributes to a better brand reputation. Customers are becoming more aware. Many of them are interested in the “behind the scenes” aspect, and thus, they are interested in your suppliers. Ethical sourcing practices show consumers your dedication to quality and social responsibility, contributing to your brand reputation. 

Finally, ethical procurement greatly contributes to your competitive advantage. Ethical practices help you stand out from the rest, and you can use these to market your products. 

Key Statistics for Sustainable and Ethical Procurement 

Let’s also take a look at some statistics to understand the importance of ethical and sustainable procurement practices. 

• More than 51% of global businesses set sustainable procurement practices to ensure high ethical standards and display corporate social responsibility. 
• According to BNEF forecasts, 90% of procurement experts will require suppliers to demonstrate evidence of carbon neutrality. 
• McKinsey’s research suggests that companies with strong ESG credentials will be able to save from 5 to 10% in costs. Also, this research forecasts that companies with strong ESG will experience higher growth in market value compared to competitors (around 10-20% more). 
• Greenly Institute’s research showcases that companies prioritizing ethical and sustainable procurement will increase their brand value from 15 to 30%.

Examples of Unethical Procurement 

As far as we are clear on what ethical procurement is, let’s review a few specific examples of unethical procurement. 

Bribery and Corruption 

An example of unethical procurement can be bribery or corruption. For instance, if you bribe the supplier to influence the contract terms. It will undermine fair competition. 

Favoritism

One of the most common examples of unethical procurement is favoritism. Essentially, this practice refers to the process of preferring one supplier over another based on personal connections. 

In ethical procurement, the suppliers are selected based on merits and performance. Thus, when the selection process is affected by connection and not the actual quality they provide, the procurement becomes unethical. 

Bid Rigging 

Another example of unethical procurement practice is bid rigging. Bid rigging is collusive tendering. It is a process when businesses that supposedly are “competing” conspire to raise prices. 

Illegal Sourcing 

When it comes to the severity of impact, illegal sourcing is one of the most unethical procurement practices. This involves purchasing from suppliers involved in illegal activities, such as having unsafe workspaces or using child labor. 

Unethical Labor Practices 

Another type of unethical procurement is partnering with suppliers that ignore ethical labor practices. This means that the business partners with an organization that pays workers less than minimum wage does not provide good working conditions, and ignores other ethical labor practices. 

Your clients can turn on your company and products if they find out you engage with suppliers who do not provide ethical labor practices. This is one of the main reasons millions are turning on Shein, due to concerns regarding labor practices.

Importance of Personal Morals on Ethical Procurement 

Personal morals and standards are crucial for ensuring ethical procurement. In fact, ethical behavior that is not regulated by law is highly dependent on an individual’s personal value system. The value system consists of beliefs, values, and attitudes. A belief is usually a larger idea people believe to be true. Values are things that are important to an individual as qualities, such as honesty. Attitudes are ways in which individuals approach different people and situations. 

Understanding how personal value systems affect ethics and behavior is vital. It will help to conduct employee training and ensure that everyone holds highly ethical standards regarding work. 

Best Practices for Ethical Procurement 

There are a variety of practices you can implement for ethical procurement. 

Establish Controls 

Essentially, you should aim to implement certain control measures within your organization. When it comes to control, it is vital to know that it consists of three main elements: policy, supervision, and systems. 

Thus, you need to establish clear policies regarding procurement and sourcing within your organization first. Then, assign roles and responsibilities to the procurement team members to supervise procurement compliance with the set policy. 

Finally, when it comes to systems, centralized procurement management should be set to gain greater control, transparency, and visibility into the practices. 

Conduct Employee Training 

When assigning supervisors to manage the ethics of procurement, make sure they know how to do so. Create a comprehensive training that will explain to the supervisors what are considered unethical practices and what “red flags” indicate about such. 

Conduct Regular Audits 

Make sure to conduct surprise audits of your organization and the suppliers to discourage them from using unethical practices. 

Not all of the audits should have a specific date. If you truly want to understand what is going on inside the organization, surprise audits are a great way to do so. 

Ensure Transparency 

Establish clear regulations and incorporate relevant technology to ensure transparency in the process. To increase transparency, centralize procurement processes to store and manage all the required documentation in one place. 

Switch to Ethical Procurement Practices with Tradogram 

If you are looking for a procurement solution that will allow you to practice ethical procurement, then you are in the right place. Tradogram is an all-in-one procurement software that comes in handy with all the necessary features for ethical procurement. 

Tradogram’s features range from PO and invoice management tools to supplier evaluation and compliance tracking tools. With this platform, you can ensure that your procurement processes are ethical and transparent. 

‍Contact us and find out how we can help your business thrive while remaining ethical.