Procurement is power
Employees in procurement have a unique position, in that they can decide over large sums of money, owned by the company they work for. Procurement should aim to deliver maximum value to the company, just like any other department. In dealing with suppliers, this can lead to conflicting interests. On the one hand, both supplier and customer will benefit from the long-term success of the latter. This is the long-term perspective. On the other hand, both parties will want to optimize the value that transactions generate for their own business. In short, the supplier wants to sell high, and the customer wants to buy low.
The end justifies all means?
It seems to be a natural reaction of many that when interests conflict, open and transparent communication is replaced by playing games, seeking conflict, and applying authority. However, there should be ethical standards that limit such inclinations. Nevertheless, I have not seen or heard of any initiative to increase the ethical standards when dealing with suppliers. As long as the last dime is squeezed out of any contract, companies seem to turn a blind eye to the methods that are being practiced.
It’s about… money
Some areas in supply chain management suffer from a large gap between theory and practice and in procurement, this seems to be no different. My own rough estimate is that 90% of all procurement activities is simply aimed at minimizing the money handed over to suppliers, and using all possible means to achieve this. I have seen many cases where procurement departments will lie, break promises, procrastinate, play games, such as enlarging any detail favorable to them to support their arguments. As this is happening all the time, some of us have started to believe this is normal. However, I believe this behavior is shocking and it is high time for an ethical re-alignment of procurement departments.
Not all procurement departments are equal, of course. There are many cases where suppliers are treated well and allowed to earn a fair margin. However, many times more I have seen cases where large companies with huge buying power, and margins in the double figures, one-sidedly dictate prices and conditions. I myself have dealt with such a company in the past, which for example increased the payment term from 30 to 90 days, no questions asked. The move was illegal, but this company relies on the fact that suppliers will have no realistic means to enforce their rights. We have all read the notorious examples of supermarket chains not paying fair prices to farmers, or automotive companies forcing suppliers to pay huge sums of money when they fail to deliver, slashing their accumulated profit in one go.
Let’s start behaving again
Again, we all seem to think this is normal in today’s business practice, or we have gotten used to it. Contrarily, I believe it is high time for a change – an ethical turnaround of procurement departments, from the one-dimensional focus on costs, to a fair and sustainable relationship with suppliers – even when such suppliers are much less powerful, or do not have the luck to supply a niche product with very little competition. That we treat each other respectful in business should not only be the result from power balances, but should follow from the fact that we are human beings, trying to make a living in an honest way. You could call this naive – I call this trust, the basis for any partnership, and for productive supply chain management.