David J. Hoover, C.P.M., A.P.P.
David J. Hoover, C.P.M., A.P.P., Purchasing and Contracting Manager, Aeroquip Corp., Jackson, MI, 49203 517/789-2711, www.aeroquip.com.
Abstract. Historically, it had been considered a violation of accepted ethics to treat one supplier substantially different from another. NAPM's "Principles and Standards of Purchasing Practice", in fact, stresses "impartiality" and the avoidance of gifts or gratuities which might influence the purchasing decision. However, a recent Cooper, Frank and Kemp study(1) revealed that these same Principles and Standards finished nearly last when purchasers were queried about what helps them develop their ethical standards. Why? NAPM Executive Vice President R. Jerry Baker, C.P.M. writes, "The fact is, ethics is so complex an issue...that there are no easy answers to the many questions it raises. One problem is defining ethics. In a society such as ours there are no absolutes, and no uniform rules of behavior(2)". If this is true, which ethics apply when?
This paper presents the results of a survey of the nation's top purchasing professionals and uses the results to examine the potential reasons for observable changes in the idea of what is considered ethical within supply management. Additionally, the author seeks to stimulate more discussion on this topic among purchasing professionals by raising questions about contemporary ethics.
The Hypothesis. Through a survey, the author sought to test the following hypothesis: That which is considered ethical behavior within an organizationally supported partnership with a key supplier differs from the ethical standards within other, more detached types of supplier relationships.
The Survey. In August, 1997, the author conducted a forty-two question survey of chief procurement officers of forty-five company members of the Manufacturer's Alliance for Productivity and Improvement (MAPI). Over 50% responded. The survey posed a variety of questions, some philosophical, some situational, with regard to what would be considered ethical within the organization's supplier relationships. 100% of the respondents reported that their firm has an ethics policy (in contrast to the wider study conducted by Purchasing magazine, which indicated that only 59% of those responding had such policies(3)).
The Results. The results of the survey showed that nearly half of those responding strongly disagree that ethics are solely related to source selection, but rather guide the post-award relationship as well. Eighty-two percent utilize source selection teams rather than one individual having sole responsibility for sourcing. While the Principles and Standards suggests refraining from accepting "gifts, (or) entertainment" which "might influence, or appear to influence, purchasing decisions", the survey results provided a substantially different picture with regard to what is considered standard business practice today. Fully 77% of respondents disagreed to some degree that being treated by a supplier to lunch and golf or the company CEO going to dinner and a Broadway show with his supplier counterpart was improper.
Partnerships and Ethics. Eighty-three percent of the survey respondents endorse the formation of partnership relationships with suppliers and 96% strongly agree that trust is the foundation of success within such a relationship. Perhaps the most interesting irony within the survey results is that ninety-five percent answered that trust is best built by practicing traditional views of ethics. Yet, when specifically challenged, it is clear that partners are treated differently than non-partners.
For example, while 54% disagreed that it is improper to disclose sensitive information to any supplier under any circumstance, 77% disagreed when the same question was posed specifically as it relates to partners. In fact, 91% of the respondents said they would share information not shared with others, with partners. The clear question for additional discussion is whether this position enhances the supplier's power of incumbency, giving it unfair advantage over competitors. If so, is such a policy ethical? Maybe, maybe not. However, virtually any contemporary purchasing professional will likely agree with the 91% that this situation is real life.
More responded that they would discourage outside contact with "commodity" suppliers than partners. Similarly, more would encourage outside contact with partners than with others. This, too, suggests handling partners differently on a post-award basis, than suppliers with which the firm has a traditional "adversarial" relationship. And yet, ironically, while every respondent agreed to some extent that "trust in a business relationship with a strategic partner is best built by the ongoing interaction of the people involved in managing that relationship", 55% agreed that it would be improper under their organization's policy for "the teams which manage the relationship from each organization to attend a week long offsite team building camp". Only half that many responded that it would be improper for the customer team to be guests of the supplier at its hospitality tent at a NASCAR event!
Perhaps the most profound result of the survey is that of the 73% of respondents who agreed to some degree that "that which constitutes ethical behavior should not vary from supplier to supplier", more than half of that 73% agreed when asked in the very next question whether "that which constitutes ethical behavior may be different with a strategic partner than with other types of suppliers". Summarily, then, why would the respondents simultaneously indicate that:
Survey Conclusions. Clearly their is a lack of consistency in the responses within the survey. The flippant conclusion is that there exists no conclusion. However, it would seem to be a satisfactory judgement to observe that procurement ethics may be in a state of flux. One could make the observation that, through their responses, the respondents are trying to say the "right thing", that is, trying to hold onto the traditional ideas of ethical behavior. However, these same respondents have communicated, via their survey answers, that the nature of the partnership has caused them to rethink and change their practice regarding how they deal with suppliers, even if these new methods are incongruent with traditional thinking about ethics. Why might that be?
The Nature of Partnerships. If one were to ask a dozen highly experienced procurement professionals to define a partnership, he or she would likely receive twelve different answers. Interestingly, none would probably be wrong and eighty percent of each of the twelve's answers would include roughly the same characteristics. The author actually had an experience where a colleague said, "I can't really define a partnership for you, but I know one when I see one". Although they probably existed in the twenties when NAPM's Principles document was drafted, partnerships as we currently understand them are still relatively new. What is it about them that is causing such ethical confusion?
One point on which most managers, including those surveyed, tend to agree, is that partnerships are trust based relationships. Consider the most intense trust based relationship which exists: the relationship with one's spouse. Is a husband more likely to share confidential information with a spouse than a mere acquaintance or even a close friend? Does a husband find offending his spouse a more troubling experience than offending some stranger? Is the husband more likely to exert extraordinary effort to meet his spouse halfway or attempt to mend a disagreement before it festers into something irreparable? Does the husband have infinitely more to lose if his spousal relationship breaks up, particularly given the level of investment made? Of course, the answer to all of these questions is 'yes'. Does it not then stand to reason that the same might be true in other trust based relationships? Might the respondents be treating partners differently because they must, given the organizational investment which has been made versus what it stands to lose?
Perhaps, too, different ethics were reported in a partnership relationship because the commitment to such relationships is an organizational decision, the ramifications of which will be felt over long periods of time; not a spot buy made in isolation by a buyer. In other words, "rules" designed to maintain the propriety and integrity of an individual buyer, to the extent he or she reflects upon the firm, may no longer apply. Within a partnership, the source selection decision has been made and the organizational decision to devote resources to the development of that source has also been made, most likely at a level far above the buyer. The management of the partnership tends to be cross-functional, meaning new points of view are constantly being brought into multiple points of contact. The relationship is governed by the combination of all parties' ethics, i.e. the company culture.
And finally, perhaps changes in what is considered ethical have occurred because organizations have realized that it is people, not machines, that are the source of innovation and actually do the business. General Motors recognized its error of the 1980s of investing heavily in robotics at the expense of its most flexible resource, human capital. More and more time is spent at work than ever before. Many relationships that develop into friendships blossom on the job, including, many will hate to admit, between buyer and seller. The business culture in Japan thrives on personal relationships, including gifts and entertainment. It also is a country in which some of the strongest supplier partnerships exist.
More Questions than Answers? If ethics are, in fact, changing, is that necessarily a bad thing? Does it mean that we are less ethical today than a quarter or half century ago? Should we be feeling guilty? Given the success that purchasing managers attribute to the partnerships which they have developed with suppliers and the vigor with which they continue to pursue them, it would appear not. If a buying organization relies on the traditional ethical view and, for example, refuses to allow the team which manages its relationship with a key partner participate in a team building program with its counterparts in the supply firm (the question did not stipulate which organization would pay or if attendees would "go Dutch"), is it sending a message to that partner that it does not trust the supplier's motivation? If there is not trust, is there true partnership? How would your spouse respond?
Rather, it would seem changes in what is considered ethical may only be natural. It is said that morality is defined by what today's society defines as moral. If so, then today's procurement professionals are best positioned for leading in the definition the ethics of contemporary business. The survey clearly indicates that they are saying ethics may be changing. What do you think?
Post Script. This paper was written, and its corresponding presentation made, because the author has never before seen this topic addressed. Hundreds of books and articles present points of view and how to's on partnerships and/or ethics, but the author could find nothing, despite a concerted effort, which expressly covered ethics within partnerships. Similarly, he could find no video or audio offering on the topic within NAPM libraries, nor could a presentation on the issue at the International Conference be recalled. He therefore seeks as many opinions as possible on the subject and invites your input on an issue which continues to fascinate at least one purchasing manager.