MNP 2601 Purchasing Management
Chapter 6: Sustainable purchasing and supply
management
Corporate governance and purchasing and supply management
The King report boats on the principle of King II by emphasizing sustainability, and providing a list of best
practice principles.
King III provides guidance to all corporate entities on serious governance related aspects including:
Ethical leadership and corporate citizenship
Boards and directors
Audit committee’s
The governance of risks
The governance of information technology
Compliance with laws, rules, codes and standards
Internal audit
Governing stakeholder relationship
Integrated reporting and disclosure
Directors have an economic accountability to shareholders and an obligation to all stakeholders to ensure
that the company’s resources are utilized service to ensure the continuing viability of the business.
This involves:
environmental sustainability,
social responsibility,
respect for human rights
Effective management of stakeholder relationships
King three – economic value of the company is not based on the balance sheet alone
In purchasing situations, P & S personnel must always:
act professionally in the interests of the organization and stakeholders
be free and honest and awarding of contracts
Have an intimate knowledge of the product or service they purchase
Having intimate knowledge of the supplier market and market conditions
Keep up to date with the newest developments in the P & S field
For corporate governance and financial reporting, specific attention must be given to possible problem areas
such as long-term purchasing agreements, electronic communication with suppliers, supply management,
inventory control, write-offs and risk management.
Corporate social responsibilities of P & S management
P & S management has an economic responsibility to shareholders.
P & S is expected to comply with legal obligations and must also observe ethical responsibilities.
P & S responsibilities can be defined as meeting the discretion responsibilities expected by society. These
encompass activities relating to:
Community – buying from local suppliers, donate into local development campaigns.
Diversity – search for and purchase from previously disadvantaged groups
Environment – using life cycle analysis to evaluate the environmental impact of its products and
packaging. Encouraging other suppliers to commit to waste reduction goals & environmentally friendly
practices
Ethics – abiding by the organisations code of conduct
1
, Financial responsibility – following applicable financial standards and requirements and applying
sound financial practices
Human rights – respecting the constitution of South Africa and ensuring the fair treatment of workers
and workers conditions
Safety – promoting a safe environment for each employee in the supply chain
Ethical aspects in purchasing and supply management
Business ethics
The set of moral principles or rules of conduct that guide our behavior in business.
The key requirements stipulated by the King III report are regarded as follows:
The board should ensure that the company is a responsible corporate citizen
Leadership should be effective and based on an ethical foundation
The board should ensure that management cultivates ethical conduct and the creation of an ethical
risk profile and the establishment of a code of conduct.
The assurance of the companies ethics performance supported by an assurance statement
Business ethics and ethical conduct starts with top management.
Purchasing and supply ethics and ethical conduct
Purchasing ethics are based on business ethical principles.
Business people, managers and individuals are not as concerned about ethical conduct in any other area or
function of the enterprise as much as in purchasing and supply for the following reasons:
Purchasers have power over large sums of money
Purchasers may have the greatest say in terms of which supplier will receive an order
A purchaser is exposed to more unethical temptations than any other employee
Unethical action by purchasers influences relations with suppliers
Temptations influence a purchasers objectivity and rational thinking
Sales representatives are frequently less mindful of ethical conduct.
Areas of unethical conduct among purchasers
Personal favours include gifts, money in the form of kickbacks and even bribes. There are more subtle areas
in which the purchaser can consciously or unconsciously act unethically:
A purchaser may have interests in supplier, and may put their own interests before those of an
employer.
Loyalty of purchasers or fear of retaliation from superiors may give rise to unethical behavior.
An enterprises purchasing power can also be misused if purchasers placed orders for themselves and
their friends
Withholding important information from a supplier may be unethical if the suppliers position is
harmed in a competing transaction.
Information on suppliers obtained from written quotations, tenders or sales representatives should
be treated confidentially.
The setting of specifications by the users or purchasers to suit one specific supplier to cut out
competition is unethical.
Disclosure of confidential information on the purchasers own organization is unethical.
Ethical code of conduct
The first and most effective measure against unethical behavior.
The policy document on ethical behavior should contain information such as
2
Chapter 6: Sustainable purchasing and supply
management
Corporate governance and purchasing and supply management
The King report boats on the principle of King II by emphasizing sustainability, and providing a list of best
practice principles.
King III provides guidance to all corporate entities on serious governance related aspects including:
Ethical leadership and corporate citizenship
Boards and directors
Audit committee’s
The governance of risks
The governance of information technology
Compliance with laws, rules, codes and standards
Internal audit
Governing stakeholder relationship
Integrated reporting and disclosure
Directors have an economic accountability to shareholders and an obligation to all stakeholders to ensure
that the company’s resources are utilized service to ensure the continuing viability of the business.
This involves:
environmental sustainability,
social responsibility,
respect for human rights
Effective management of stakeholder relationships
King three – economic value of the company is not based on the balance sheet alone
In purchasing situations, P & S personnel must always:
act professionally in the interests of the organization and stakeholders
be free and honest and awarding of contracts
Have an intimate knowledge of the product or service they purchase
Having intimate knowledge of the supplier market and market conditions
Keep up to date with the newest developments in the P & S field
For corporate governance and financial reporting, specific attention must be given to possible problem areas
such as long-term purchasing agreements, electronic communication with suppliers, supply management,
inventory control, write-offs and risk management.
Corporate social responsibilities of P & S management
P & S management has an economic responsibility to shareholders.
P & S is expected to comply with legal obligations and must also observe ethical responsibilities.
P & S responsibilities can be defined as meeting the discretion responsibilities expected by society. These
encompass activities relating to:
Community – buying from local suppliers, donate into local development campaigns.
Diversity – search for and purchase from previously disadvantaged groups
Environment – using life cycle analysis to evaluate the environmental impact of its products and
packaging. Encouraging other suppliers to commit to waste reduction goals & environmentally friendly
practices
Ethics – abiding by the organisations code of conduct
1
, Financial responsibility – following applicable financial standards and requirements and applying
sound financial practices
Human rights – respecting the constitution of South Africa and ensuring the fair treatment of workers
and workers conditions
Safety – promoting a safe environment for each employee in the supply chain
Ethical aspects in purchasing and supply management
Business ethics
The set of moral principles or rules of conduct that guide our behavior in business.
The key requirements stipulated by the King III report are regarded as follows:
The board should ensure that the company is a responsible corporate citizen
Leadership should be effective and based on an ethical foundation
The board should ensure that management cultivates ethical conduct and the creation of an ethical
risk profile and the establishment of a code of conduct.
The assurance of the companies ethics performance supported by an assurance statement
Business ethics and ethical conduct starts with top management.
Purchasing and supply ethics and ethical conduct
Purchasing ethics are based on business ethical principles.
Business people, managers and individuals are not as concerned about ethical conduct in any other area or
function of the enterprise as much as in purchasing and supply for the following reasons:
Purchasers have power over large sums of money
Purchasers may have the greatest say in terms of which supplier will receive an order
A purchaser is exposed to more unethical temptations than any other employee
Unethical action by purchasers influences relations with suppliers
Temptations influence a purchasers objectivity and rational thinking
Sales representatives are frequently less mindful of ethical conduct.
Areas of unethical conduct among purchasers
Personal favours include gifts, money in the form of kickbacks and even bribes. There are more subtle areas
in which the purchaser can consciously or unconsciously act unethically:
A purchaser may have interests in supplier, and may put their own interests before those of an
employer.
Loyalty of purchasers or fear of retaliation from superiors may give rise to unethical behavior.
An enterprises purchasing power can also be misused if purchasers placed orders for themselves and
their friends
Withholding important information from a supplier may be unethical if the suppliers position is
harmed in a competing transaction.
Information on suppliers obtained from written quotations, tenders or sales representatives should
be treated confidentially.
The setting of specifications by the users or purchasers to suit one specific supplier to cut out
competition is unethical.
Disclosure of confidential information on the purchasers own organization is unethical.
Ethical code of conduct
The first and most effective measure against unethical behavior.
The policy document on ethical behavior should contain information such as
2
