Transcript Chapter 7_March2013

Purchasing Ethics and
Vendor Relations
7
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 Purchasing
Chapter Learning Objectives
 Explain the importance of ethical concerns in
purchase decision making.
 Explain how codes of ethics and purchasing
policies provide guidelines to purchasers as they
interact with vendors.
 Describe the importance of professional vendor
relationships.
 Summarize the basics of vendor’s handbooks.
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Let’s look at the case study
 Page 173 of the text
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Purchasing Ethics
 What is legal activity?
 Legal activity is permitted by law and a person
cannot be prosecuted for doing it.
 Just because something is legal, is it acceptable
and professional?
 Where do ethics and morals come in?
 Ethics = complying with standards for conduct
 Moral = based on principles about right and wrong
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Purchasing Ethics
continued
 Statements of Business Conduct
 Company policy that defines ethically and morally
what is acceptable and professional.
 Purchasing Code of Ethics
 Policy that sets guidelines that should be followed
as purchasers implement purchasing procedures
and make purchasing decisions.
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Ethical Behavior
 Ethical behavior refers to behavior that society
in general or the culture of the establishment or
the industry considers “the right thing to do.”
 Is it legally permitted?
 Does it follow company policy or code of ethics?
 Does it harm anyone?
 Is it fair and truthful?
 Would I care if it happened to me?
 Would I tell others about it?
 What if every person did the same?
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Ethical Behavior
 Let’s read the example on page 175
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Codes of
Purchasing Ethics
 The best operations
have a highly
developed sense of
professional ethics to
protect and enhance
their reputation.
 Page 178 in text
 Let’s read each one
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Codes of Ethics
continued
 A code of ethics, even if written, will not be
effective unless there is ongoing enforcement
and consequences for failure to follow.
 Disciplinary actions for failure to comply with the
code should be planned, written and
communicated to purchasers.
 Purchasing policies help provide consistency
because issues will always be addressed and
problems resolved in the same way; that is
according to the applicable policy.
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Common Ethical Policies
Accepting Gifts
 In most cases, ethical purchasers avoid accepting
gifts from current or potential vendors.
 Some operations establish maximum values for gifts
– What do you think is an acceptable amount/value?
 Examples on page 183 (Darden) & 184 (Wendy’s)
Free Samples
 Should be accepted only if the operation has a
sincere interest in potentially purchasing the product
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Common Ethical Policies
continued
Free Samples
 Should be accepted only if the operation has
a sincere interest in potentially purchasing
the product
Competitive Bidding Policy
 Ensure that the best price is received for products
meeting quality requirements from approved
vendors
 Implement a process that reduces the possibilty of
favoritism.
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Common Ethical Policies
continued
Best Price First
 Purchasers use a best price policy when
they indicate that the first bid will be the only
price that the vendor can offer.
Conflict of Interest
 When purchaser or any relatives or friends
own or have an interest in a business that
sells products to the operation.
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Common Ethical Policies
continued
Vendor Errors
 Purchasers should all vendor documentation
carefully and ask for verification prior to
awarding the contract if something appears
unusual.
Local Buying
 Focus of business, community support, best
price; all must be considered in buying local
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Common Ethical Policies
continued
Back-Door Selling
 Vendor’s representative attempts to contact
or influence a production employee with
approval of the purchaser.
Trial Orders and Samples
 Small quantities are generally allowed with
the intent that the products will be
purchased upon evaluation
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Common Ethical Policies
continued
Kickbacks
 Money or other gifts received by an employee in
return for purchasing from a specific vendor.
Considered the most serious ethical violations
and they are also illegal.
Reciprocity
 A purchaser agrees to buy something from a
vendor in return for some kind of business from
the vendor.
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Common Ethical Policies
continued
Personal Purchases
 Also known as steward sales
 These are employee purchases of goods to
take advantage of the company’s purchasing
power.
 When offered, steward sales must be closely
monitored to ensure payment.
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Vendor Relations
 Concept relates to the ways in which purchasers
interact with their vendors.
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Vendor Relations
continued
General factors that often influence the relationship
between purchaser and seller.
 Relative size or business volume of both
organizations
 Reliance on the vendor
 Compatibility
 Extend that resources are committed
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Importance of Professional Relationships
 Long term relationships allow for collaborative
efforts that emphasize trust, flexibility, and
innovation.
 Any problems that arise between purchaser and
the vendor should be identified, discussed, and
resolved quickly, and communication between
the purchaser and the vendor should be
ongoing.
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Importance of Professional Relationships
cont
The purchaser’s experience with vendors will be based
on several factors:
 Consistency of product quality and availability
 On-time and accurate deliveries
 Effectiveness of communication
 Value pricing
 Interest in addressing the purchaser’s concerns
 Level of service provided
 Quality of information supplied
 Problem-free payment processing and reasonable
payment terms
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Vendor Handbooks
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
A vendor’s
handbook is
developed by the
establishment to
inform vendors
about the
organization’s
purchasing
policies and
procedures.

Distributed and
discussed with
approved
vendors

Page 188
Key Terms:
Code of purchasing ethics Guidelines that should be
followed as purchasers implement purchasing
procedures and make purchasing decisions.
Ethical Behavior that society in general or the culture of
the establishment or the industry considers “the right
thing to do.”
Kickbacks Money or other gifts that are received by an
employee in return for purchasing from a specific
vendor.
Legal Permitted by law.
Moral A standard that is based on principles about what
is right and wrong.
Reciprocity A situation that occurs when a purchaser
agrees to buy something from a vendor in return for
some kind of business from the vendor.
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Key Terms:
continued
Statement of business conduct A broad code of
behavior that addresses many aspects of the business
and its employees who have a wide variety of functional
responsibilities within it.
Steward sales A situation that occurs when some
companies allow their employees to buy products
purchased by the establishment for their personal use.
Supply chain A coordinated system of businesses,
people, activities, information, and resources that move
products from the manufacturer, processor, or grower to
an operation.
Vendor relations The ways in which purchasers interact
with their vendors.
Vendor’s handbook A handbook developed by an
establishment to inform vendors about the organization’s
purchasing policies and procedures.
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