Procurement with Purpose
13/03/2021
It is often said that The Netherlands is a country of merchants and vicars, of people with a trade instinct, but also with a moralistic side. However, while we as Procurement professionals are busy preaching about sustainable sourcing, green supply chains and socially responsible procurement, the COVID-19 crisis showed that we overtake our morals easily. It seems that little has changed in this since the 17th century: while we point the finger on one side, we are not averse to ‘cut corners’ or ‘close our eyes’ to make a good deal. However, it is not only a Dutch issue, we are in good company. According to EY’s Global Integrity Report 2020, 18 percent of those surveyed claimed ‘It is justifiable to pay bribes to survive,’ compared to 4 percent in 2010!
A lack of thoroughness
Further, EY’s report shows that 94% of Fortune 1000 companies redesigned their supply chains in response to COVID-19, which is seen as one of the largest threats to business integrity: 28% of respondents say it’s one of the highest risks to ethical conduct in their business. Only a third (34%) of companies are very confident that their third parties (incl. suppliers, partners) abide by relevant laws, codes of conduct and industry regulations. What is especially concerning is that respondents indicate ‘Ignoring third-party misconduct’ as the top unethical behaviour they would commit for personal gain. PwC’s Economic Crime and Fraud Survey 2020 shows that about 19% of companies are dealing with Procurement fraud. Respondents cited suppliers as the source of their most disruptive external fraud. This is concerning and suggests an apparent lack of thoroughness in Procurement and Supply chain management.
Tempting but not smart
My colleague professor Stephan Wagner (ETH Zurich) recently published a new article (Seongtae & Wagner (2020) in Decision Sciences) about corruption in the supply chain (e.g. paying bribes) and its impact on the stock price. Based upon a dataset of 315 corruption cases, Wagner found significant market penalties for firms involved in corruption allegations. It also revealed that investors react more negatively to upstream (versus downstream) corruption cases, suggesting where firms must be most cautious. This shows that although it might be tempting for the merchant in you to ‘cut ethical corners’ or ‘close your eyes’ to misbehaviour in the supply chain, it is not a smart thing to do.
Defining a purpose
Leading sustainable companies show an increasing interest in the integrity and ethical behaviour of their supply chains. Often this interest is translated into a clear purpose for procurement. One of the leading questions to answer is: how can we make the world a better place through the money that we spend in our supply chains? Can we find some greater goal than just saving costs, for example, contributing to the UN Sustainable Development Goals (SDGs)? A strong shared purpose also helps procurement professionals to navigate the ethical challenges accelerated by the COVID-19 pandemic.
Next generation procurement leaders
Procurement with purpose also resonates very well with the Next Generation of Procurement professionals, our SCM students at Maastricht University. They are very concerned about sustainability, the environment and socially responsible leadership. If you want to attract this young talent for your Procurement organisation, you better have a Procurement purpose in place!
This is an adapted version of the opinion article which appeared on Maastricht University’s website on 21 Oct 2020.
Related experts
Frank Rozemeijer
Professor of Procurement & Supply Chain Management
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