Procurement and

Procurement and
purchasing
Purchasing
management
Management
CEM132/E02
GROUP 1
 GROUP 1

Purchasing ethics and law

Purchasing ethics and law
CEM132/E02

CEM132/E02 PROCUREMENT AND

PURCHASING MANAGEMENT
BAUTISTA, Ira Jean Roge Fay
CANGCO, Gezelle M.
EJERA, Raphaela Lois H.
FRUGALIDAD, Neil John
GAPPI, Ray Armand
Raphaela Lois H. Ejera

Definition of Ethics
Definition of Ethics
A SET OF MORAL PRINCIPLES
T H AT M AT U R E A N D D E C E N T
PEOPLE FEEL SHOULD GUIDE
B E H AV I O R

Business ethics is centered on

oHonesty
oFairness
oRespect
Raphaela Lois H. Ejera

Ethics of Purchasing
Ethics of Purchasing
ALL University Staff and
Faculty must be above
suspicion of unethical
behavior when conducting
procurement activities
Key Standards of conduct:
oAvoid Conflicts of interest
oAvoid behaviors that may
negatively impact
procurement decisions
Raphaela Lois H. Ejera

Ethics of Purchasing
Ethics of Purchasing
 Key Standards of
conduct:
o Know and obey laws and
regulations
o Protect confidential and
proprietary information
o Maximize value for each
peso of expenditure
o Conduct business with
suppliers in good faith and
with equal consideration
 Buyers have great authority
in granting contracts.
Sometimes suppliers attempt to secure this
business with unethical practices. Unfortunately,
temptation is always present when large amounts
of money are involved

LEARN MORE

Firms have reputations

just like individuals. Buyers
can have significant influence
on corporate reputations.

LEARN MORE
Raphaela Lois H. Ejera

Ethics of Purchasing
Ethics of Purchasing
 The competitive nature
of the public purchasing
arena and the
expenditure of significant
amounts of public funds
require that ethical
standards be incorporated
into the foundation of all
purchasing functions
Raphaela Lois H. Ejera

Ethics of Purchasing
Ethics of Purchasing
E T H I C S I N P R O C U R E M E N T:
What are you doing to keep
procurement ethical?
 Ethics play a major role in
procurement and are
considered more important
as technology and consumer
behavior change. Being
ethical means being in
accordance with the rules or
standards for right conduct or
practice, especially the
standards of a profession.
Raphaela Lois H. Ejera

Ethics of Purchasing
Ethics of Purchasing
E T H I C S I N P R O C U R E M E N T:
What are you doing to keep
procurement ethical?
 Procurement professionals
must conduct their business
practices in the most ethical
manner. Failing to abide to
ethical practices can lead to
immoral and illegal
practices such as bribery,
favoritism, illegal sourcing
etc.
 W H Y E T H I C S A R E I M P O R TA N T
FOR PROCUREMENT
PROFESSIONALS?
 Procurement represents their organization and
is responsible for awarding business to
suppliers. Any unethical behavior will have a
negative impact on the brand image of the
organization
LEARN MORE

W H Y E T H I C S A R E I M P O R TA N T
FOR PROCUREMENT
PROFESSIONALS?
 Procurement professionals experience
enormous pressure from internal and
external forces to act in unethical ways as
they usually have control over large sums
of money.
LEARN MORE
 W H Y E T H I C S A R E I M P O R TA N T
FOR PROCUREMENT
PROFESSIONALS?
 An ethical person is respected in the business
community. Once a buyer earns a reputation
within an industry, it is difficult to change it. A
professional reputation is something a buyer
carries throughout his entire career.
LEARN MORE

W H Y E T H I C S A R E I M P O R TA N T
FOR PROCUREMENT
PROFESSIONALS?
 Ethical behavior in conducting
business helps in establishing a long
term relationship and goodwill with
suppliers
LEARN MORE
 Types of Unethical Behavior
Name of reporter

Types of Unethical Behavior

 Accepting supplier
favors & gifts
 Conflict of interest
 Confidentiality of
information
 Fair and unbiased
treatment
 Integrity
 An Ethics Policy
An Ethics Policy
Name of reported

So how you ensure that your

or ganization’s pr ocur em ent
ethics are upheld?

 An ethics dispute should never be

the result of a difference of opinion
between the procurement
department and a company
employee. Every organization
should have a written policy
making clear what top
management considers ethical and
what it considers unethical.
 Ethics Training
Ethics Training
Name of reported

 Ethics training is one of the

most essential components to
ensure that employees are
aware of the importance of
ethical practices. An innovative
training will provide employees
with all the important
information about ethics so that
they are able to deal with their
day-to-day jobs in an ethical
way.
 Ways to promote professional
standards and ethics in a
purchasing organization
Name of reported

 Support of top management is

critical. Expectations and
standards of conduct should be
formalized in the PPM.
 Policies on standards of
conduct should be formally
reviewed periodically in training
programs or otherwise.
 Ways to promote professional
standards and ethics in a
purchasing organization
Name of reported

 Whistle-blowing policy
 Encourage suppliers to report
sub-standard practices
 Rotate buyers
 Do post-purchase audits
occasionally
Informally observe buyer lifestyles
 Strategic Sourcing
Name of reported

Strategic Sourcing
Has the trend toward
strategic sourcing had any
implications on the issue of
ethics in purchasing?

Using the team approach to

select suppliers limits the
opportunity for unethical
behavior.
 Strategic Sourcing
Name of reported

Strategic Sourcing
• Why do we buy this product or
service?
• What do we use it for?
• What market conditions do suppliers
operate under?
• What profit margin do suppliers seek
to obtain?
• What is the total price of purchasing
from a particular vendor ?
• Where is the good or service
produced?
• What does the production process
look like?
 Conclusion
Conclusion
Name of reported

 Organization must have a strong

code of ethics for their business
processes and procurement
process. Employees must be given
training regularly on ethical
behavior. The advantages will be
greater efficiency and value from
procurement activities, a better
brand image for the organization
concerned, and increased loyalty
from end-customers and
appreciation from the public in
general.
 Purchasing
Purchasing
Name of reported

Right Quality
Right Quantity
Right Place
Right Time
Right Price
 Purchasing Law
Purchasing Law
Name of reported

 A buyer’s basic responsibility is to  Litigation is costly, slow, alienates

conduct procurement wisely and
expeditiously
 A highly legalistic approach is
unnecessary and unprofitable
 Disputes with suppliers can
normally be resolved amicably
and effectively with negotiation
parties, and has uncertain
outcomes
 Nonetheless, buyers need to be
familiar with the legal dimensions
of their job.
 Legal Issues
Legal Issues
Name of reported

 Buyer exceeds his actual

Laws of Agency
• Issue of Personal Liability
authority but not his apparent
authority
 Buyer exceeds both actual
and apparent authority
 Misuse of proprietary
information
 Taking actions for personal
gain
 Taking illegal actions
 Legal Issues
Legal Issues
Name of reported

• An enforceable contract
requires
1.Competent parties
2.Legal subject matter
3.Offer
Contract Law 4.Acceptance
5.Consideration (bargained-for
exchange)
• Issue of acceptance
• Litigation
• Liquidated Damages Clause
 Legal Issues
Legal Issues
Name of reported

• Cancellation of orders
 Supplier defaults
 For convenience of buyer firm
• Breach of contract
Contract Law remedies
 Negotiate
 Alternative Dispute
Resolution (ADR)
 Mediation
 Arbitration
 “Liquidated Damages” Clause
“Liquidated Damages” Clause
Name of reported

A liquidated damages provision

represents prior agreement by both
parties on the ground rules to be
followed in determining costs and
damages in case the contract is
breached.
Just-in-Time (Lean) Purchasing

Group # 1
 Introduction to Lean Purchasing

The key lean principles focus on people, postponement,

• efficiency, and the elimination of waste. All of these key
business principles have a direct effect on the purchasing
function.
 Lean Production Systems
• In its simplest form, “the manufacturing process” is a
composition of the material flows. Just-in-time (JIT) is
designed to manage the flow of materials, components, tools, and
associated information.
• JIT is also referred to as lean production.
• The JIT (lean) system is a powerful management tool that could
easily determine the success or failure of the manufacturing
system.
 Practices Essential for JIT Implementation
• The following practices are considered essential for a
comprehensive JIT implementation:
1. Uniform production
2. Quick set times
3. Small lot sizes
4. Short lead times
5. Preventive maintenance
6. Multifaceted workforce
7. Supplier development
 Significance Of Lean Purchasing
• The cost of raw materials has traditionally, been a serious
concern of top management.
• The just-in-time production control system focuses on reducing both
raw materials and work-in-process inventories.
Purchasing Benefits
 1. Reduced Inventory Levels
• JIT purchasing facilitates reduction in inventory levels and
the associated inventory holding costs.
• Firms like Toyota have been able to reduce inventory levels
to such an extent that their inventory turnover ratios have
gone up to over 60 times per year, compared to
corresponding ratios of 5 to 8 reported by most American
manufacturers.
 2. Improved Lead-Time Reliability
• Compared to traditional purchasing approaches,
delivery lead times under the JIT system are
considerably shorter.
• Lead-time reliability is usually much better for just-in- time
systems.
• This implies higher levels of customer service and
lower safety stock requirements for the company.
• Lower levels of safety stock contribute significantly to
reduced working capital requirements for the firm.
 3. Scheduling Flexibility
• JIT emphasizes scheduling flexibility by aiming for
reduced purchasing lead times and setup times.

• Such flexibility prevents confusion in the manufacturing

plant and offers unique competitive advantages to
manufacturing firms since they are capable of adapting
to changes in the environment more quickly.
4. Improved Quality and Customer Satisfaction
• JIT purchasing results in improved quality and
corresponding levels of higher customer satisfaction
• Since high-quality products are critical in achieving a
competitive advantage in today’s global business world,
manufacturers gain immensely by implementing the JIT
production control system.
• High-quality incoming materials result in savings
associated with reduced rework and scrap
 5. Reduced Costs of Parts
• As cooperation and relationships between suppliers and
manufacturers build up in a JIT system, so do the
opportunities to conduct an extensive value analysis and
focus on reducing the cost of parts purchased.
• A comprehensive JIT progress report indicates that
supplier costs were reduced by 11 percent when they
adopted the JIT system in cooperation with their
customers.
 6. Constructive Synergies with Suppliers
• A lean purchasing program involves close technical cooperation
with suppliers. This particularly means the cooperation between
manufacturing and design engineers.
• Because of smaller lot sizes and frequent delivery schedules,
suppliers are in a position to receive quick feedback regarding any
potential manufacturing or design problems.
• Also, manufacturing is in a position to implement engineering
changes quicker because of the reduced inventory levels.
• The JIT progress report mentioned above indicates that supplier
quality improved by 26 percent since the JIT system was adopted.
Some common problems associated with
implementing the JIT

1. Lack of cooperation from suppliers

2. Lack of top management support
3. Lack of employee readiness and support
4. Lack of support from design engineering
personnel
5. Low product quality
6. Lack of support from carrier companies
7. Lack of communication