Purchases: Don’t Take Supplier Ethics Too Seriously, Let Them Buy You a Cup of Coffee

- August 29, 2014 2:00 AM
Categories: Commentary, Friday Rant, Supplier Collaboration | Tags: ,

In my years of researching and assessing sourcing sophistication and approaches inside procurement organizations from around the globe, I’ve noticed there’s a universal bent – except perhaps in the most corrupt developing markets – to begin to discourage biases to/for one supplier or another in the sourcing process at the early stages of procurement maturity (after, let’s say, a base “stage zero”).

I’ve seen “zero tolerance” policies against any type of supplier relationships that could be based – heaven forbid – on the development of personal relationships. At the extreme, there are organizations – public and private sector – that will not even allow procurement team members or suppliers to buy each other coffee (in certain cases even within the buyer’s facility where it’s not free!)

I never quite understood how having one party pay for a 25 cent cup of coffee could bias relationships during a supplier development or commercial meeting. But the world is full of companies and groups that take procurement and supplier ethics and codes of conduct to the extreme.

Yet at the same time, there’s often an irony at work as companies become more sophisticated in their sourcing approaches. The most sophisticated sourcing processes and tools actually welcome bias and attempt to quantify the cost of it, not in isolation, but in comparison to total cost and supplier alternatives. Perhaps there is a reason for bias – supplier responsiveness to corrective action requests (even if not documented as such) in either a manufacturing or services environment is something that a stakeholder is likely to know instinctively. “Supplier ABC – they’ve always got our back. If there’s a problem, they’re instantly on it compared with XYZ.”

Of course one might say that bias ceases to become bias when they’re quantified in formal supplier development and supplier performance management ratings and reports. But the “gut feel” of key stakeholders (e.g., plant managers) when it comes to how suppliers handle situations when things don’t go as planned – or when they’re humming along perfectly in large part thanks to strategic supplier’s approach to things – is something that matters. And we shouldn’t take that away.

This, of course, is precisely why more advanced sourcing models that embrace the ability to give preference (or the opposite) in the negotiation and tendering process is so important. Being able to quantify the importance of both on-time performance (systems data) and responsiveness (often a qualitative input), not just in a way that weighs these parameters against price (a good start, though not enough), but rather in the context of an overall award scenario that takes into account other factors is often the best sourcing  model of all.

These types of scenario analyses not only surface the cost of bias – either justified or not justified – but get both procurement and key stakeholders on the same page during the sourcing process itself, even before final award decisions are made. In effect, it’s built in change management at the source (no pun intended), which is likely to accelerate any delays in post-bid contract implementation as well as set the stage for the right type of supplier reviews and development activity over the length of a contract.

At the end of the procurement day, a bias is really just a constraint (other constraints in an award scenario may include, for example, awarding at least 20 percent of business to minority suppliers or making sure that no supplier has more than 80 percent of the contract value award for a given SKU). Constraints add costs to award decisions. But as we all know, as the saying goes, cost is what you pay and value is what you get. And I’d always rather quantify and understand all the potential costs of a supplier relationship upfront, including accounting for biases, with everyone on the same page than the alternative.

The essence of this entire topic – and my motivation to write about it – comes down to debunking the myth that a contract is a relationship and vice versa. Contracts can be fully quantified – relationships, not so much.  If you’ve ever been concerned about being replaced by a robot, seize that “aha” caffeine moment to bond over a cup of coffee or tea. And please, do the right thing to build the relationship and trade off shelling out the pocket change individually. Silly policies beget silly procurement outcomes.

Comments

  • Omar Khan:

    Bravo for tackling a very sensitive but pertinent topic. True & dedicated procurement professionals uphold highest ethical standards on their own and do not really need policing by the organizational ethics committees. These professionals are also courteous enough to treat their suppliers with common & professional courtesy and even buy a cup of coffee or lunch for that matter. When the time comes to negotiating contractual terms, professionals from both sides passionately debate over issues and protect the best interests of their respective companies. And, contracts don’t happen automatically in a vacuum. Contracts are managed by people; professionals from customer’s and supplier’s organizations. In business as in life relationships are important to promote business interests and mutual cooperation.

  • B+t:

    What are the ethical boundaries in exploiting the gap between a salespersons interest and their employers interest?

  • Thomas Kase:

    Good article, good replies – having been on the supplier side in the manufacturing industry early in my career, and later in life on the procurement solution provider side, I correlate heavy-handed “zero tolerance” policies with companies that are difficult to deal with, averse to change and innovation, even at risk of going out of business soon. I wouldn’t be surprised if hedge fund managers should survey solution provider sales teams to identify these risk averse firms, and then create a contrarian investment strategy based on the idea that these firms will decline and fail.
    The worst example of zero tolerance disease I ever saw was Eastman Kodak – and this was at their local HQ in gift-giving Japan – and we all know what happened to Kodak. I clearly saw that writing on the wall.
    If you (the CEO) honestly think that your procurement team (and other employees) are that easily swayed with trinkets, cups of coffee, and other token common courtesy gifts – then you have far bigger problems on your hands than enforcing “no gift” policies.

  • Thomas Kase:

    B+t – good point, and this is something that I think ends up biting companies in the rear. This “unethical” procurement behavior or “going for blood” approach includes insisting on revisiting already settled clauses, or rolling out the pencil sharpener yet again. At some point good buyers understand that Price, Quality and Delivery are 3 items that pull in opposite directions – and that trying to unilaterally push for excessively good performance in one of them will impact the other two.
    From the other side of the table, even if the sales guy might concede to a discount in the 11th hour at the end of the sales quarter – you just won’t get the same support and attention post contract as the firm that negotiates more reasonably. Word gets around that you’re a “fill-in-the-blank” to work with – and sales guys move around, and talk to each other – and some companies have acquired a “reputation” to put it politely. That’s not to say you shouldn’t negotiate, but there is definitely a line.

    • b+t:

      Good point, but im coming from the opposite angle – what about offering the salesperson favours and hospitality?

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