Ethics - Supplier and Customer Relationships

Before Supply Chain Management became the action statement we were Purchasing Professionals with concerns for our employer. Those concerns included the "Seven Rights" which included; quantity, quality, price, time, source, service, and place. Our success was often measured on how well we met the expectations of our organization within these seven action items. When I had to fill an open Purchasing position I always asked the applicant, "How do you identify who your customers are?" The question seems simple enough but often the applicants either did not know why I was concerned with the customer or they only saw the end-user as the customer. From my point of view, this question is more relevant today than at any other time because as a Supply Management Professional we are now concerned with the whole picture and not just the purchase of goods or services, or materials management, or logistics, or any other single component. I started my career in distribution and as a result, I learned early on that the relationship we have with our customers and understanding their needs and expectations is paramount to what makes us and our organization successful.

So when I ask that question, "How do you identify who your customers are?" - My expectation is that you will say that there are three areas that are customers. They are internal to the organization, our suppliers, and the end users/customers. Since our organization is functioning to meet our customer's needs and expectations, then we need to understand those needs and expectation and how they impact the other departments that are also trying to do the same. So a customer to the Supply Management Professional is anyone that we provide a service.

It is fairly easy to see end-users as customers. Many do not define or think about their fellow staff members as customers because they work alongside them. However, our goal should be to meet their requirements, thus allowing them to meet the needs of the organization's customers. As a result, we are providing a service to them and they are our customers. The last part of this trio is the supplier. So why are suppliers customers? First, let's look at the terms vendor and supplier. Many Supply Management Professionals use the terms interchangeably. However, there is a difference. A vendor is someone that is used once or infrequently, you do not include them in design, and it is a probably a low value purchase. On the other hand, a supplier is an organization that you will have an on-going relationship with for a product or service or equipment. Officially or unofficially a supplier occupies a certain status within a purchaser's company (i.e. preferred, certified, etc.) and depending on the level they attain you may share confidential information, they may be on your design team, etc. Now that I have made the distinction, does that mean you treat them differently? The answer is no. Many argue that suppliers are not in the customer category. But we provide them with the opportunity to expand their knowledge and business. They often share information with us that assists us in our decision-making processes. We interact and recommend ways that make our relationship easier or in other terms help each other improve efficiencies. As a result we are providing something to them that has value because they may not make a sale but the exchange may help them in other ways. As an example, your organization may evaluate a sample of there stock merchandise (i.e. nitrile gloves). If their product does not perform and you provide them feedback, you have provided them real world use experience that they may not have been able to do in their test facility.

How do you enhance these relationships? The best way is with common courtesy. Common courtesy should be employed whether you are dealing with a vendor, a supplier, a customer, or internal staff. There are several components to common courtesy.

1. A Supply Management Professional should always strive to create a positive environment when dealing with anyone that can be considered a customer.
   
2. Treat everyone as you would want to be treated: "The Golden Rule." We will come back to this a little later.
   
3. Be prompt. This includes answering the telephone when it rings, returning voicemail and e-mails promptly, be on time for appointments, etc. Prompt communication will create an atmosphere of understanding and cooperation.
   
4. Have established and published procedures that are followed by all impacted by them.
   
5. In decision-making be fair and impartial showing no favoritism in any actions.
   
6. Create an atmosphere that emphasizes the elimination of misunderstandings and conflicts.
   
7. Maintain confidentiality at all times.
   
8. Be open and honest by providing guidance and supervision based on both the letter of the law as well as the spirit of the law for both legal as well as ethical practices.

Let's go back to the "Golden Rule." This rule basically states to give to someone else what you would like to receive. This may not be what they want to receive at all. You may be content to receive your order at a restaurant anywhere between thirty to sixty minutes. This may not be what another customer wants. So there is the "Platinum Rule" which is to meet the other person's expectation. Since each customer has different expectations, the challenge is to learn what they are and make every effort to accomplish that goal. The last Rule is the "Double Platinum Rule" which basically means to exceed what the customer expects. For instance, your company may offer another product that enhances the one being purchased by your customer but they do not know about it. By offering and explaining to them you may exceed their expectations. There is an excellent article written by Bryan K. Williams for Hotel OnLine in June 2007 called, "Three Service Rules: The Golden Rule, Platinum Rule, and Double Platinum Rule." This should always be our goal - to exceed our customer's expectation.

Of course, our first responsibility is to our organization but poor supplier and customer relations will eventually eliminate the organization, both competitively and existence. Remember, supplier have to want to do business with those in the organization. If they are treated with threats, poor invoice payments, rule, or other similar behavior they will not want to do business with you. They may keep prices high hoping you will go elsewhere or not quote at all. A reduction the the competitive base results in increased costs, which will impact the profitability of an organization. I believe that the above will assist in your efforts to exceed the expectations that many suppliers and customers have seen too often from the Supply Management Professionals.

Ethics - Responsibility to the Employer

When accepting a Supply Management position with a company the relationship between the company and staff member are different than most other staff members within the organization. The position that is closest in nature to the Supply Management position is the sales representatives. Supply Management and Sales create an agent relationship with the employer because each position represents the interest of the company to other companies or individuals. Both positions are given parameters within which they must operate.


The Institute for Supply Management (ISM) lists several guidelines that a Supply Management Professional should adhere to. They include understanding the authority granted, obtain maximum value, avoid activities that compromise the interests of the employer, look-out for unethical and unlawful activities and notify the employer, do not use the employer's name without authorization, and avoid using the employer's purchasing power to benefit individuals.


Let's look at granted authority to act for the employer. For example, the Supply Management staff member may be assigned capital equipment responsibility in which purchases can be made up to $5,000.00 with the requisitioning department director's signature. If an order was placed for MRO items, or over the $5,000.00, or without the proper authorizing signatures, they have exceeded their authority. This is one of those ethical standards that are supported by a legal statute, "The Law of Agency." This law establishes the agent relationship between the employer and the Supply Management Professional to allow him/her to act of the employer's behalf as an employed third party. The law establishes three levels of Agency; Universal, General, and Special.

1. Universal Agent: This agent holds a broad range of authority to represent and act on the principals behalf. The individual my hold the power of attorney or be a professional (i.e. lawyer).


2. General Agent: This agent had limited or defined authority to perform a series of transactions over a continuous time period.


3. Special Agent: This agent has authority to act for the principal for either a single transaction or for specified related transactions defined by a period of time.

The Supply Management Professional is normally classified as a "General Agent" that covers the length of employment and the duties and responsibilities assigned to them upon hire or any changes that are made during employment.

As in the example above there are normally parameters assigned these staff members. Their actions can impact how they and the company are viewed by others. I discussed perception in a previous writing and here is one area that perception may impact the Supply Management Professional directly. There are three areas of authority that is recognized; Actual, Apparent, and Implied.

1. Actual Authority is established by the employer by either their words or actions. This can be created and changed either verbally or in written format (i.e. policy, contract, letter, or e-mail). This authority is clear and allows the agent to act within the scope provided and to bind the employer based on the actions performed by the agent.


2. Apparent Authority is based on words or actions that lead a reasonable person to believe that they have received authority to act on behalf of the principal. The assignment of an individual to a position that there is an assumption that certain authorities are attached.


3. Implied Authority are those acts that are necessary to carry out the expressed authority to act.

It is best that the Supply Management Professional has actual authority granted so that the actions that they take are specifically laid out and not open to interpretation. However, individuals outside the organization may make assumptions based on the company's representative based on how they act or even by the title they hold. A company should be careful with the creation and assignment of job titles because authority may be erronerously assumed by both the employee and/or outside individuals.

The main resposibility to the employer is fiduciary. This is where the Supply Management Professional should be excelling by producing the best value for the dollars that they commit on behalf of their employer. It does not matter whether this is hard or soft dollars or even the difference between cost savings and cost avoidance. We should strive to manage the dollars efficiently so that there are more dollars available for use within the organization. This starts with basic education of how the organization functions, it's accounting practices (i.e. paying invoices within terms, etc.), understanding the function of materials purchased and their alternatives, value analysis, etc. Based on these and other financial items the Supply Chain Professional should always keep the best interests of the company first. For example, years ago there was an ISM ethical standard about using the company's purchasing power to get price concessions for staff. This was later changed because many companies offer any of their customer's employees discounts off of purchases. What has to be watched for is that the company is not receiving additional discounts based on the dollars the employees spend with the supplier.

I mentioned education and I need to expand on this. It is our responsibility to maintain our own education on new theories and practices, so that we will be able to continue to maintain the best interests of our employer. Many feel that it is the responsibility of the company to pay for ISM Chapter meetings, seminars, etc. It is a benefit many companies have provided and with many it has become an expectation. But it is something that you agreed to upon hire - to do the best you can for the company hiring you, so make sure the salary you agree to will allow you to continue your education. If you do not maintain your education you are not providing what is expected as a part of your job performance. Over time, doing just your job will impact your company and ultimately you. The Supply Management Professional should always strive to provide value added performance and functions because anyone can place a purchase order.

Remember, whether you look at hard or soft dollars, or cost savings and/or cost avoidance, or other financial criteria for a Supply Chain Professional a dollar saved is a true dollar earned and seen on the bottom line. We need to use every ethical and legal tool possible to assist a company in their efforts for a good bottom line.