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On the fifth day of Christmas my supplier gave to me….

Four tips to ensuring safe sourcing

Christmas is mainly thought of as a holiday spent with family and friends. However, it is also often a time when suppliers take the opportunity to schmooze their clients. Suppliers take clients out for dinners and/or even send a gift or two down their chimney. But turn up the Christmas gift-giving spirit a little too high and you may end up with conflicts with interests, and even worse, applicable laws. Recently a Swedish court found that a Christmas dinner worth about 1000 SEK (approximately 100 Euro) was enough to sentence the involved for bribery.

Today’s business is global. Suppliers and customers from around the world interact daily. Representatives from various business cultures and legal systems meet to do business. What is considered acceptable or even necessary in one country can be deemed inappropriate or even illegal in another. Mistakes can be costly for both parties. It is absolutely essential and unconditional for companies to maintain acceptable business ethics and a zero tolerance for corruption. Both buyers and sellers must adhere to all applicable laws and their respective company policies.

But how do you ensure that suppliers and employees stick to the rules?

Setting the rules

First, the applicable laws in the concerned countries apply. But in today’s international business, you may find yourself in a situation where several countries’ laws may apply. A rule of thumb is to consider the most strict of the laws that may apply. However, knowing the laws in each and every possible country is not possible for most people. Therefore, in addition to adhering to the applicable laws, most corporations have both an internal and a supplier code of conduct, or similar, to follow. Having them in place is a good start. These policies need to be clear, communicated, and understood.

Knowing the rules

Second, we also recommend securing the appropriate training for the suppliers and staff. Simple web-based training classes that cover areas such as code of conduct and business ethics, can be made available for them. This can be a very efficient way to secure that both the suppliers and the staff are aware of and have understood the policies – before anyone does something that may be in conflict with the policies.

Following the rules

Third, the sourcing processes must include means to prevent and detect unethical business.

Every company is required to develop a sourcing process that ensures sourcing of the best solution based on the company’s criteria. There are no one-size-fits-all solutions, but a well-documented sourcing process is a precondition. The rationale behind every vendor selection must be clearly described and any conflict of interest documented. A sourcing process must also include means to track adherence to the rules.

Controlling the rules

Finally, there must be an independent control function implemented. Sourcing decisions need to be audited by a corporate audit or a similar mechanism.  Also, there must be ways of reporting potential compliance issues without risking harm for the person reporting.

Make sure that the company policy is well known within the organization and that both parties’ applicable laws and policies are adhered to. Thereafter you can hopefully enjoy the Christmas gifts and dinners without concern.

Further reading

About the author

Mikko Saari is leading the Sourcing and Supplier Management practice at Sofigate. We are recognized by our customers and partners as a trusted advisor for all strategic sourcing and supplier management initiatives. We assist, lead, and manage our customers’ sourcing and supplier management portfolios with a total annual case value of more than 500 million euros.