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JOMO KENYATTA UNIVERSITY

OF
AGRICULTURE & TECHNOLOGY
JKUAT SODeL

SCHOOL OF OPEN, DISTANCE AND eLEARNING


P.O. Box 62000, 00200
2015

Nairobi, Kenya
E-mail: elearning@jkuat.ac.ke

HPS 2101: PRINCIPLES OF PROCUREMENT

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HPS 2101: PRINCIPLES OF PROCUREMENT
This presentation is intended to covered within one week.
The notes, examples and exercises should be supple-
mented with a good textbook. Most of the exercises have
solutions/answers appearing elsewhere and accessible by
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clicking the green Exercise tag. To move back to the same


page click the same tag appearing at the end of the solu-
tion/answer.
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Errors and omissions in these notes are entirely the re-


sponsibility of the author who should only be contacted
through the Department of Curricula & Delivery
(SODeL) and suggested corrections may be e-mailed to
elearning@jkuat.ac.ke.
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HPS 2101: PRINCIPLES OF PROCUREMENT
LESSON 10
Procurement Ethics

10.1. Introduction
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Business ethics and in particular personal relationships be-


tween buyers and suppliers is an area which is receiving
increased attention in both public and private companies.
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Recent high profile scandals involving corruption in sup-


ply chains have caused many organizations to focus on the
personal ethical aspects of business transactions.
Personal ethics in business is a complex and sensitive area.
There are many view points and opinions that different
JJ II people have in this area and it is not always easy to say
J I categorically what is right and what is wrong. For instance
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HPS 2101: PRINCIPLES OF PROCUREMENT
personal ethics has a social and cultural dimension that
means that business practices such as generous gift giving,
which are perfectly acceptable in some countries, may be
utterly unacceptable in other countries.
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Certain aspects of ethics are covered by law such as fraud,


bribery and corruption but purchasing and supply goes
beyond legal requirements
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It is very important to be seen acting ethically even if


unfounded questions are raised publicly damage can be
done which is difficult to erase from peoples minds. Again
if you have buyers or other people reporting to you they
will be influenced by your actions
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10.2. Dealing with suppliers
The buyer should observe the following ethical issues when deal-
ing with suppliers
Suppliers should be treated equally. For example any ad-
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ditional information given to one supplier in response to a


question on an invitation to tender or request for informa-
tion should be provided to all other suppliers
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There should be transparency of how bids are evaluated


against the criteria and the successful supplier chosen.
The buyer shouldnt unfairly pressurize a supplier
The buyer should respect the confidentiality of information
JJ II provided by the supplier. For example tender information
J I should be treated as confidential and kept securely. Where
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it is considered reasonable to reveal certain information, it
should not be traceable back to the particular supplier
unless the supplier has given permission
The buyer shouldnt mislead suppliers
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The buyer should not engage in Dutch auctions (i.e.


where a buyer discloses supplier Xs price to supplier Y
in order to get Y to beat the price, then disclosing sup-
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plier Ys new price to supplier X in order to get supplier


Xs price down and so on)

10.3. Systems and procedures


Systems and procedures can be designed to discourage or
JJ II prevent unethical practices from happening. Certain func-
J I tions if carried out by the same person could permit un-
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HPS 2101: PRINCIPLES OF PROCUREMENT
ethical behaviour. For example there is the potential for
abuse if the same person alone is responsible for placing
orders, certifying receipt of orders and authorizing pay-
ment to suppliers. Without a good system in place this
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would allow the person in conjunction with the supplier to


inflate the price or quantity and no one else would check
that the price was sensible before the supplier was paid or
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that the same as the quantity ordered.


To minimize the potential for unethical behaviour the du-
ties of placing orders, certifying receipt and authorizing
payment should be separated. A further safeguard is rota-
tion of duties such that periodically particular duties are
JJ II carried out by different person
J I In addition to designing systems and procedures
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10.4. ISM code of ethics
10.4.1. Impropriety
Prevent the intent and appearance of unethical or compromising
conduct in relationships, actions and communications.
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Supply management professionals deal with internal and ex-


ternal customers and suppliers. Interaction and treatment be-
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tween supply professionals and these constituents must be hon-


est and fair-minded. Avoid actions that appear to, or actually,
diminish ethical conduct.
Consequences of a perceived impropriety can be the same as
consequences of an actual impropriety.

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10.4.2. Recommended guidelines for preventing impro-
priety
Maintain business professionalism in all communications,
including social media.
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Work to identify situations which, even through unantic-


ipated circumstances, may negatively impact business re-
lationships.
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Discuss an actual or potential impropriety with manage-


ment. Take action as appropriate.
Avoid actions throughout the organization that might cre-
ate the suspicion of impropriety.
JJ II Select outside business and event venues with care to man-
J I age possible misperceptions by the business community or
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others.
Avoid excessive discussion of personal matters.

10.4.3. Conflict of Interest


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Ensure that any personal, business and other activities do not


conflict with the lawful interests of your employer.
Supply management professionals must not use their posi-
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tions to induce another person to provide inappropriate benefits


to themselves or others. Potential conflicts arise from family,
business, personal or financial relationships. Even though a con-
flict may not technically exist, supply management professionals
must avoid the appearance of such a conflict.
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Recommended guidelines to avoid and manage con-
flicts of interest
Potential Conflicts: Discuss actual or potential conflict(s)
of interest with management. Reassign supply manage-
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ment responsibilities as warranted or necessary.


Guidance on Conflicts: Notify the appropriate person for
guidance or resolution when a potential conflict of interest
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arises.
Conflict of Interest Statements: Advocate that your em-
ployer obtain and review conflict of interest statements
that encourage employees to disclose any potential conflict
of interest upon initial employment and annually there-
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after.
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Secondary Business/Employment: Do not harm the in-
terests of your employer through a secondary business or
other employment.
Personal Business: Do not engage in inappropriate per-
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sonal business with your employer, employers competitors


or suppliers. For example, lending money to, or borrowing
money from, any customer or supplier.
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Investments or Business Ownership: Follow employer poli-


cies and practices covering investments, equities and other
financial instruments.
Inside Information: Do not use inside information for per-
sonal gain.
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J I Outside Activities: Do not misuse your position as an em-
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ployee to the detriment of your employer or its reputation.

10.4.4. Influence
Avoid behaviors or actions that may negatively influ-
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ence, or appear to influence, supply management deci-


sions.
Every person in a position to influence a supply decision must
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avoid all activity that may diminish, or even appear to diminish,


the objectivity of the decision making process. Interests of the
employer must be served by those who are a part of the supply
process. Influence is a factor in almost all business decisions.
Use care to evaluate the intent and perception of influence on
JJ II supply management decisions. Clarity can often be gained by
J I asking questions such as
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Is the business activity in the best interest of the employer?
How will the business activity be perceived by peers and
others?
Sources of influence can be introduced into relationships between
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buyers and sellers, including:


1. Employer policies
2. Gifts, gratuities or entertainment
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3. Business meals d. Relationships


4. Product samples
5. Political matters
6. Advertising
JJ II 7. Market power
J I 8. Specifications and standards
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Recommended guidelines for dealing with matters of
influence:
Employer Policies: Supply management professionals should
encourage and recommend the development and imple-
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mentation of policies that eliminate or reduce inappropri-


ate influences on the supply process.
Gifts, Gratuities and Entertainment: The giving or receiv-
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ing of gifts, gratuities or entertainment have the potential


to influence buying decisions. These may be offered to a
supply professional, others involved with a buying decision
or to a family member.
Manage and evaluate carefully the acceptance of gifts,
JJ II gratuities or entertainment, even if the value is small.
J I Develop and communicate a written policy.
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Consider the frequency of giving or receiving gifts,
gratuities or entertainment and measure the collec-
tive impact.
Abide by the letter and the intent of guidelines and
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policies.
Do not solicit gifts, gratuities or entertainment for
yourself, your employer or your family.
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Avoid accepting monies, loans, credits and preferen-


tial discounts.
Seek direction from management if there is concern
that a business relationship may be impaired or ap-
pear to be impaired by refusal of a gift, gratuity or
JJ II entertainment.
J I Business Meals: Meals are occasionally required when con-
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ducting business and are often a part of building business
relationships.
Use care to ensure a meal is for a specific business
purpose.
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Manage meal frequency and cost with suppliers.


Relationships: Avoid situations where relationships may
negatively impact business decisions.
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Product Samples: Product samples may be offered by sup-


pliers or requested by the buying organization when neces-
sary for testing or other purposes. Document transactions
covering the acceptance and use of product samples. Clar-
ify the responsibility for the cost of samples and address
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any obligation for sharing test results with the supplier.
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Political Matters: All organizations are subject to inter-
nal and external forces and pressures. Internal forces and
pressures result from an organizations culture. External
forces and pressures result from economic conditions, laws,
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regulations, public opinion, special interest groups and po-


litical entities. The negative influence of internal and ex-
ternal forces and pressures on supply management can be
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minimized when the organization adopts, communicates,


and behaves based on ethical principles and standards.
Advertising: Exercise care when accepting advertising or
promotional items, participating in activities that promote
one supplier over another or activities that could be per-
JJ II ceived as preferential treatment.
J I Market Power : Supply management professionals must be
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aware of their organizations position (e.g., economic size,
power, etc.) in the marketplace and ensure that market
power is not abused.
Specifications and Standards: Supply management profes-
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sionals must ensure that specifications and standards are


objectively developed and communicated.
Communication: Follow organization media policies, in-
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cluding those related to social media.

10.4.5. Responsibilities to the Employer


Use reasonable care and granted authority to deliver
value to the employer.
JJ II The supply management professional must serve the lawful
J I interests of the employer. This requires application of sound
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judgment and consideration of both legal and ethical implica-
tions.

Recommended guidelines for satisfying responsibili-


ties to employers
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Understand the authority granted by your employer.


Obtain maximum value for the employer.
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Avoid activities that compromise, or create the perception


of compromising, the best interests of the employer.
Ensure virtual office, and other working arrangements, de-
liver value to the employer.
Notify the employer of known or suspected unlawful or
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unethical activities.
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Avoid unauthorized use of the employers name.
Avoid using the employers purchasing power to make pur-
chases for nonbusiness use. If employer sponsored personal
purchasing programs exist, make certain that the arrange-
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ments are fair to suppliers, employees and the employer.

10.4.6. Supplier and Customer Relationships


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Promote positive supplier and customer relationships


Supply management professionals are responsible for developing
and maintaining effective business relationships with suppliers
and customers. Impartiality across all business interactions and
transactions enhances the reputation and good standing of the
JJ II employer, the supply management profession and the individual
J I supply professional.
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HPS 2101: PRINCIPLES OF PROCUREMENT
Recommended guidelines for maintaining positive sup-
plier and customer relationships
Develop and implement policies and procedures for busi-
ness processes that are fair, unbiased and applied consis-
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tently, including where long term relationships exist with


key suppliers and customers.
Encourage prompt and fair problem resolution.
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Avoid unreasonable demands.


Communicate promptly, openly and directly.
Establish a process for suppliers and customers to notify
your employer of known or suspected unlawful or unethical
JJ II activities.
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10.4.7. Social Responsibility and Sustainability
Champion social responsibility and sustainability practices in
supply management.
Supply management professionals are in a position to lead
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and direct the development and integration of sustainability and


social responsibility policies and strategies into the business and
supply chain. Supply professionals are also in the position to
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reinforce the importance of personal commitment and how such


commitment impacts sustainability and social responsibility ini-
tiatives and outcomes.

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HPS 2101: PRINCIPLES OF PROCUREMENT
Recommended guidelines for support of diversity and
inclusiveness supply base
Provide socially diverse suppliers the opportunity to par-
ticipate.
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Promote inclusion of diverse suppliers in the organizations


supplier development and mentoring programs.
Ensure long term program sustainability through applica-
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tion of forward thinking concepts beyond price.

Recommended guidelines for support of diversity and


inclusiveness workforce
Drive employee diversity within the organization.
JJ II Proactively promote diverse employment practices through-
J I out the supply chain.
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Recommended guidelines for support of human rights
Treat people with dignity and respect.
Support and respect the protection of international human
rights within the organizations sphere of influence.
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Lead the organization and its supply chain to ensure ap-


plication of human and employment rights.
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Recommended guidelines for support of the environ-


ment
Encourage the organization to be proactive in examining
and implementing opportunities to be environmentally re-
sponsible internally and throughout the supply chain.
JJ II Encourage environmental responsibility across the supply
J I base.
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Promote development and diffusion of environmentally friendly
(green) practices and products throughout the organiza-
tion and the supply chain.
Champion consumption of environmentally responsible prod-
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ucts and services within the organization.


Design and redesign products and services to improve en-
vironmental impact.
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Develop a complete understanding of the organizations


environmental footprints and their impact on sustainabil-
ity. Implement strategies to reduce and eliminate negative
footprint impacts.

JJ II Implement market intelligence capabilities to proactively


J I monitor and plan for changes in domestic and international
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legislation.

10.4.8. Confidential and Proprietary Information


Protect confidential and proprietary information
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Confidential and proprietary information requires protection and


should be shared with others only when needed. Access must
meet employer ethical guidelines, contractual obligations, gov-
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ernment regulations and laws. Supply management profession-


als should ensure that recipients of confidential and proprietary
information know that they have an obligation to protect it.
Examples of information that may be considered confidential or
proprietary include:
JJ II Price and other related elements
J I Contract terms and conditions
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Bids and quotations
Product and other costs
Descriptions of formulas and processes
Designs and drawings
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Organizational plans, goals, objectives, strategies, and re-


sults
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Financial information not available from public sources


Information that may impact prices of financial instru-
ments
Wages and salaries
Information about employees, officers and directors
JJ II Personal demographic and other data, including background
J I checks and investigations
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Sources of supply

Recommended guidelines for confidential and propri-


etary information
Develop and communicate a policy regarding protection of
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confidential and proprietary information.


Mark and identify confidential and proprietary informa-
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tion appropriately.
Use nondisclosure agreements that state the terms for use
of confidential and proprietary information.
Accept no confidential or proprietary information unless
you have the right and need to use it.
JJ II Protect confidential and proprietary information given to
J I you.
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Require that confidential and proprietary information given
to others be protected by them.
Use confidential and proprietary information only for its
intended purpose.
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Computer software programs, languages and applications

10.4.9. Reciprocity
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Avoid improper reciprocal agreements.


Reciprocity is both a legal and an ethical issue that may re-
sult in legal sanctions against the organization, its management
and/or its supply management personnel. When supply man-
agement professionals or their organizations give preference to
JJ II suppliers because they are also customers, or when the organiza-
J I tion influences a supplier to become a customer, the professional
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or the organization is engaging in a practice known as reciprocity
Agreements involving a specific commitment to buy in exchange
for a specific commitment to sell also constitute reciprocity.

Recommended guidelines for dealing with reciprocity


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Understand suppliers that are also customers may not be


a problem if the customer/supplier is the best source.
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Use care with supplier lists and ensure they are not pro-
vided to others for their use in pursuing improper recipro-
cal agreements.
Apply and obtain accounting, legal and ethical guidance
when potential issues of reciprocity arise.
JJ II Recognize that reciprocal relationships may be an illegal
J I restraint of trade in some countries.
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10.4.10. Applicable Laws, Regulations and Trade Agree-
ments
Know and obey the letter and intent of laws, regulations and
trade agreements applicable to supply management.
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Supply management professionals should develop and main-


tain an understanding of the legal concepts that govern their
activities as agents of their employers in the countries in which
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they operate. These include laws, regulations and trade agree-


ments at the international, national, state, provincial and local
levels. In addition, it is common for industries to have unique
regulations and laws with which supply managers must comply.
Some examples of laws and regulations that supply management
JJ II professionals should be aware of include:
J I Agency laws
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Contract and commercial laws
Electronic commerce laws
Antitrust laws
Trade agreements
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Trade regulations
Industry specific laws and regulations
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Government procurement regulations


Patent, copyright, trade secret and trademark laws
Environmental laws
Employment laws and regulations
JJ II Worker health and safety laws
J I Transportation and logistics laws and regulations
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Recommended guidelines for understanding and com-
plying with applicable laws, regulations and trade
agreements
Seek training in legal aspects that govern conduct of sup-
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ply management professionals.


Understand and follow laws, regulations and trade agree-
ments that are specific to the countries where business is
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transacted.
Involve legal counsel early in analysis and planning to iden-
tify and avoid potential legal issues.
Understand and apply laws specific to governmental enti-
JJ II ties.
J I Seek legal counsel when conflicts may exist. Interpreting
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HPS 2101: PRINCIPLES OF PROCUREMENT
the laws is the responsibility of legal counsel.

10.4.11. Professional Competence


Develop skills, expand knowledge and conduct business that demon-
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strates competence and promotes the supply management profes-


sion.
Competence is expected of supply management profession-
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als. Developing business skills and increasing knowledge of sup-


ply management demonstrates a commitment to the profession
and positively impacts you, your employer, peers and suppliers.
Professional development requires continuing education.

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Recommended guidelines for achieving a high level of
professional competence
Personally adopt and promote the ethical standards ex-
pected of a supply management professional.
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Encourage, support and participate in ongoing ethics train-


ing.
Establish a self development program designed to identify
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and fill gaps to remain current with changes impacting the


supply management profession and business.
Encourage ongoing professional development of employees
and suppliers.
JJ II Mentor and teach those who want to learn.
J I Become actively involved in supply management and other
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professional associations.
Earn & maintain the Certified Professional in Supply Man-
agement E.g. CIPS, KISM etc.
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10.4.12. Importance of ethical buying


The result of good ethical behaviour will be the trust of
the individuals and organizations that you deal with. A
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relationship in which trust is involved will be far more


productive than one where no trust exists. For example
there will be less reluctance to share information should
result in better decision making
Preserves an organizations public image
JJ II
Enables organization to avoid litigation (law suits)
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Eliminates scrupulous practices

Example . What would you be able to do to justify repeated


sourcing from a supplier in preference to other suppliers where
you have formed close friendships with that suppliers personnel?
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Example . Why is important to be seen to be acting ethi-


cally?
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Solution: it enhances an organizations reputation, it enables an


organization to avoid litigation due to unethical practices 

Revision Questions

Exercise 1.  Why is important to be seen to be acting eth-


JJ II
ically?
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HPS 2101: PRINCIPLES OF PROCUREMENT
Exercise 2.  What would you be able to do to justify re-
peated sourcing from a supplier in preference to other suppliers
where you have formed close friendships with that suppliers
personnel?
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References
1. Achilles information Ltd (1999).Understanding purchasing
principles, CIPS Publications
2. Andrew Hale Feinstein and John M. Stefanelli (2012). Pur-
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chasing. 6th ed. New Jersey: John Wiley & Sons, Inc.,
Hoboken.
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3. Joel D.Wisner, G.Keong Leong, Keah Choon Tan (2009).


Principles of supply chain management. 3rd ed. India:
New Dehli.
4. Kenneth Lysons (2003), Purchasing and supply chain man-
agement. England: Prentice Hall.
JJ II 5. Kenneth Lysons and Brian Farrington (2006), Purchas-
J I ing and supply chain management 7th Edition, England:
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Prentice Hall
6. Lisa Ellam (2000), Supply Management for Value enhance-
ment, Institute for Supply Management
7. Paul Novak (2012). Principles and Standards of Ethical
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Supply Management Conduct. Arizona: Institute for Sup-


ply Management.
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8. Peter. B, D. Farmer, B. Crocker and D. Jessop (2008).Pro-


curement, Principles and Management.UK: Prentice Hall/
FT
9. Saleemi, N.A (2000). Purchasing and supplies manage-
ment simplified.2nd Ed. Nairobi: Saleemi publications
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Solutions to Exercises
Exercise 1. it enhances an organizations reputation, it enables
an organization to avoid litigation due to unethical practices
Exercise 1
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