The application of ethical and responsible

sourcing within an organisation

This podcast gives an overview of the application of ethical and responsible sourcing within an
organisation.

This section looks at the application of ethical and responsible sourcing to the practical
procurement and supply environment.

Corruption is an unethical activity undertaken by a person with control or in authority. It

includes bribery, deception, abuse of power and embezzlement.

Bribery is the act of offering something of value in return for influencing a decision. It is illegal in
many countries, but not all. Within procurement, bribery can present itself in several ways, such
as offering money or gifts in return for the award of a contract, or inside knowledge to gain an
unfair advantage against the competition, among others.

Deception is a deliberate effort to present false information, withhold information or influence

any stage of the procurement cycle in a way that is detrimental to other parties. For example, if
a supplier acts in unacceptable ways to ensure that they are awarded the contract.

Abuse of power occurs when individuals misuse their position, for example, by awarding a
contract to a favoured supplier rather than the one that represents best value. And
embezzlement is the taking of money or property by a person to whom it has been entrusted.

Fraud occurs when a person acts to deliberately secure monies from another party through
dishonest methods. Examples from procurement include kickbacks, corrupting influence,
collusion, bid rigging, invoicing fraud, substitutions and false claims.

Within procurement, buyers can be susceptible to attempts of fraud from suppliers or

organisations imitating suppliers, asking for confidential information such as confidential
drawings or bank details. Fake documents can appear in the supply chain from suppliers or
regulatory bodies who have maybe received a bribe.

In order to protect your organisation from fraud, all supplier documentation, such as regulatory
compliance, should be checked and verified prior to awarding a contract.

If a contract has been implemented and then, during the contractual period, an instance of
fraud, bribery or corruption is exposed, the contract can be cancelled – this incurs both financial
costs and reputational decline.

Carrying out due diligence contributes significantly to the avoidance of unethical and
irresponsible sourcing within the supply chain.

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Human rights are the statutory ways in which individuals expect to, and should, be treated. They
include dignity, fairness, respect, equality, and freedom, and they can relate to sexual
orientation, gender, religious beliefs, cultural values, race, ethnicity, or nationality.

Within the supply chain, this is an area that must be examined with care when applying ethical
and responsible sourcing. Therefore, during the evaluation stage, procurement professionals
should investigate suppliers’ policies and practices in relation to the treatment of their workers
and the associated organisations within their supply chain. All supply chains should promote
fair and reasonable human rights.

Modern slavery includes human trafficking, which is the process of seeking, recruiting,
transporting and exploiting individuals, to work against their will. Bonded labour is an
individual’s promise to provide services through exploitation as repayment of a debt or other
obligation. Forced labour occurs when people are forced to work under the threat of
punishment. Child labour is the exploitive and illegal employment of children. And domestic
slavery is when individuals are exploited by working in private households for little or no wages
in return for living accommodation.

CIPS has a Code of Conduct that outlines the actions and behaviours that CIPS members are
expected to follow. Here are a few examples from the code:

 Never engage in unethical or irresponsible sourcing and related activities

 Always act in a professional manner, disclose any concerns or conflicts of interest and
keep the confidence of all parties within the supply chain

 Regularly and thoroughly conduct due diligence on suppliers, report any concerns, and
keep up to date with regulations by expanding knowledge through CPD

 Set positive and ethical examples for colleagues and suppliers alike, and

 Comply with the country’s law in which the procurement function has agreed and, if there
is no agreed law, ensuring that CIPS Code of Conduct is followed at all times.

Anyone who is a member of CIPS must agree to honour the code. It is therefore important to
familiarise yourself with and understand the code and ensure that work carried out meets with
the code’s guidelines.

The code promotes the adoption of ethical processes and responsible sourcing within
procurement and supply and encourages any concerns to be raised with a person of authority
within the organisation.

The code should be applied in everyday procurement activities and demonstrated throughout
the procurement cycle. Any third parties that the procurement professional or their
organisation engages with should also commit to the code.

A procurement professional’s organisation should work towards developing and implementing

a code of ethics within their own company that reflects the principles and standards shown in
the CIPS code.

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A code of ethics is a set of morals, values and principles set out by an organisation to display
what they deem to be acceptable conduct and behaviour. Ethical codes outline the values and
missions of the organisation and state how professionals within the organisation should behave
and perform within their role.

Codes of ethics contribute towards the application of responsible sourcing. When a

procurement professional is conducting a supplier evaluation, proof of the existence and
conformance to these documents can be requested. In many cases, buyers check that potential
suppliers have an ethical code of practice in the pre-qualification or supplier questionnaire stage
of the process.

Although it is not a legal requirement to have a code of ethics, it is deemed to be good practice
and contributes towards giving a procurement profession confidence that the suppliers, should
they be approved into the supply chain, are conducting themselves in an ethical and responsible
way. Many organisations have their code of ethics uploaded on their website or available in an
electronic format to send to buyers who are seeking information on their policies.

Nolan’s Seven Principles of Public Life, identified in 1995, can be used to establish the principles
on which an ethical code will be based. They are accountability, selflessness, integrity,
objectivity, leadership, honesty, and openness.

In addition to bribery, corruption, fraud, human rights and modern slavery, which were
explained earlier, codes of ethics cover information on diversity, equality and inclusion, mission
statement and values, conflicts of interest, whistle blowing and non-compliance.

Procurement professionals can use selection and evaluation methods to assess which suppliers
or potential suppliers appear to meet the criteria associated with ethical practice. However, the
claims made by suppliers must be validated by checking their documentation and ensuring that
processes are actually in place. This is done in order to protect the interest of the entire supply
chain, as well as the buying organisation. Strong due diligence prior to the contract being
awarded saves potential cost in the long term.

Suppliers that are accredited, or are a member of an association that promotes good ethical
conduct, are likely to feature this on their company documentation in the form of letters after
the organisation’s name or the authorised use of a logo. Again, this needs to be verified by
asking to see the certificate to prove membership or accreditation, or checking on a professional
register.

When validating a supplier’s information by viewing certification, it is good practice to make a

note of the date on which the renewal of the accreditation or membership is due. Up-to-date
copies of the documentation can then be requested to ensure suppliers continue to keep up-to-
date with their commitments and requirements throughout the contract’s life.

The following organisations represent good ethical conduct: Chartered Institute of Procurement
and Supply (CIPS); International Labour Organisation (ILO); Ethical Trading Initiative (ETI); Fair
Trade Foundation; Ethical Company Organisation; and Anti-Slavery International.

Legislation and regulations change frequently within industry, and procurement professionals
should aim to keep abreast of any changes and react accordingly. If legislation around a product

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or service is changed, the whole supply chain needs to conform. Therefore, procurement
professionals should take steps to check that all suppliers are up to date, aware of, and working
in line with, any changes that occur.

Procurement should continually monitor suppliers throughout the life of the contract to ensure
that the ethical and responsible practices that were specified in the contract are adhered to.
This can help to ensure that ethical and responsible sourcing is being carried out and that the
required procedures and standards are being adhered to not only by them and their
organisation directly but also throughout the entire supply chain. To apply truly ethical and
responsible sourcing, the entire operation needs to be open, honest and transparent.

KPIs that relate to the measurement of ethical supplier performance include:

 How many complaints have been received regarding diversity?

 How much packaging is being recycled?

 What percentage of energy is generated by renewable sources?

 The percentage of employees that leave each year. This can be an indicator of working
conditions. And,

 How many additional deliveries are made per order? This can indicate awareness of
pollution from transport.

Should an event including unethical behaviour, poor environmental care or lack of sustainability
be broadcast, procurement professionals can react and make preparations to protect or reduce
the potential impact throughout the supply chain.

The Triple Bottom Line (or TBL) was devised by John Elkington. It advocates measuring
sustainability in relation to the performance and investment against the 3Ps: People, Planet and
Profit.

‘People’ is to the social dimension. It considers the effect that an organisation has on its
stakeholders, such as employees, consumers, producers and suppliers. An organisation should
have strong ethical principles in place and should be giving something back to the local
community. For example, donating end-of-life computers to local youth clubs and social groups
to help the under-privileged gain access to the Internet.

‘Planet’ is the environmental dimension. It considers the immediate and long-term effect that an
organisation has on the environment, in terms of pollution, waste management, renewable
energy, and use and replenishment of natural resources. For example, switching to hybrid
vehicles to reduce CO2 emissions.

‘Profit’ is the financial dimension. Within TBL, profit is not just about the amount of money
made, it is about ensuring the continuity of the organisation and enabling good work to be
carried out in the community. For example, re-investing profit in state-of-the-art recycling
machinery for waste cardboard.

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The TBL is a useful tool for recording how sustainable an organisation is. However, it should be
accompanied by setting objectives in relation to what the 3Ps show, and then monitored by
implementing KPIs or other measuring methods to ensure improvements are made.

Sustainable procurement means balancing business needs against economic and social
development and environmental protection. Sustainable practices within procurement are vast
and varied. Here are some examples:

 Evaluating and monitoring suppliers in relation to ethical conduct to ensure that only
ethical and environmentally aware organisations are awarded contracts. In this way, the supply
chain should become a long-term sustainable operation.

 Considering TBL as a way of reporting on suppliers’ organisations.

 Actively working to reduce environmental damage in the supply chain, for example,
balancing the needs of ‘just in time’ with the environmental impact of the additional deliveries.

 Evaluating needs and only procuring what is required.

 Gaining standards and accreditations.

 Removing waste from the supply chain.

 Applying continuous improvement in the supply chain.

 Developing the procurement professionals of the future. And,

 Amending specifications.

There is an ever-increasing amount of global environmental, ethical and sustainable standards

that organisations can aspire to achieve. For example, ‘BS ISO 37106 Sustainable cities and
communities – Guidance on establishing smart city operating models for sustainable
communities’ defines a smart operating model for cities, which enables them to operationalise
their vision, strategy and policies at a faster pace. Working with suppliers that have and are
working towards sustainable and environmental accreditations, as well as ones that openly
promote their allegiance to organisations such as the ILO or ETI, contributes significantly to the
adoption of forward-thinking practices with the supply chain.

Specifications need to adapt and develop to reflect the changing requirements of the consumer
and also to comply with regulations and legislation as these are amended. In 2018, with the
drive on the reduction of plastic waste, supply chains were tasked with looking for sustainable
products to replace thousands of plastic products and components. This involved the recreation
of many specifications to remove, or at least reduce, the amount of plastic in them.

This brings us to the end of the section on the application of ethical and responsible sourcing to
the practical procurement and supply environment.

Now answer these questions to check your understanding. Pause the podcast to write down
your answers.

1. Provide a definition and example for one of the types of corruption.

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2. What areas does a code of ethics cover?

3. Select one of the sustainable procurement practices and explain how it can contribute to
social development or environmental protection.

This is the end of this podcast. You should now be able to apply ethical and responsible sourcing
to the practical procurement and supply environment.

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