Procurement Integrity Breach – A Sure-fire Way to Get Fired

The following story is true; no names or companies will be mentioned.

“Hello, Rebecca. Great to hear from you this morning. What can I do for you today?” I said to my direct report on my cell phone.

“We have a situation that needs your attention.” Her voice foretold that this was one to pay extra attention to.

“What’s up?”

“I just got a call from corporate security. They are investigating three people in our company, two in our organization, for fraud and embezzlement of a supplier.” I was really sitting up tall now and turned away from the computer completely with a pen and piece of paper. “Please, go on.”

The details were still a bit sketchy but pointed to a serious breach of our business conduct guidelines. Security needed our support to do the full investigation. It was a no-brainer and we both agreed to proceed at full speed. I called my boss to provide what we knew and that I’d keep him aware.

The day had taken a turn for the worse. I was shaken by the reality that our people, our trusted procurement professionals, were being implicated for fraudulent behavior towards our suppliers. Is there anything worse than cheating your suppliers as a procurement professional?

 

The Most Fundamental Attribute of Procurement – Honesty & Integrity

The supplier-procurement relationship is the cornerstone of the engagement between two companies doing commerce with one another. A formal supplier relationship management process is the tool for managing collaborative relationships with suppliers to achieve the required business objectives and overall supply chain strategy. The most fundamental attribute of this relationship is a foundation of honesty and integrity between the two parties.

Suppliers engage with procurement in negotiations continually, sometimes formally during periodic pricing reviews, during requests for quotes, when issues arise that need to be addressed, and more. Both parties are always pushing for the best position they can achieve. To make this work, both sides must have the baseline assumption that each are being open and honest with one another.

Without honesty and integrity between the two organizations, the relationship will never achieve what it is capable of for both sides.

 

Reality Check – The Breakdown 

The story began to unfold. It was a lot worse than we imagined.

At the time, we were introducing new products on a regular basis. Several of the commodity categories were relatively new and suppliers were vying for key positions in our approved supplier list. The procurement team had the challenge of keeping supply available at the right price, quantity, quality, and performance in a highly competitive and dynamic period. Additionally, they had to continue looking forward for the next-best products. This meant a close relationship with engineering to evaluate and qualify the products and suppliers.

This is where it got out of hand.

The three people representing our company were working with one supplier that was very close to getting onto our approved list. If the supplier succeeded, their revenue might be a couple of million dollars per year and an opportunity to grow further with us.

The supplier was very hungry for our business. The procurement and engineering teams knew this. Somewhere along the line it broke down and segued to an unacceptable point – fraudulent behavior and attempting to embezzle the supplier. They crossed a line that sealed their fate with our company and broke every code of business ethics in the industry.

The three forced the supplier to hold “business meetings” at seedy establishments, take them out to extravagant and expensive dinners, and requested money / stock grants to elevate the supplier’s position on the qualification list if they played along. It went way too far and, thankfully, the supplier called our ethics hotline.

 

Conclusion

As the investigation proceeded, the choice was very clear. Rebecca and I stayed in close touch throughout. My boss told me he’d support our decision once we made it. It did not take us long at all once the final report came out. We decided that the perpetrators would be fired immediately. As it turned out, one of the procurement professionals had recently left, so the other two people were released.

It was our only choice. We knew that and it was quite an easy decision to make.

We knew that the credibility of our organization and the company would be irreparably harmed if we chose any other course of action.

What would happen if the word got out to other suppliers? How fast would the relationships we had worked so hard to develop with our supply base disintegrate? How much would our access to new technology be disrupted? The implications of any other choice were too great.

It was the the most difficult situation I’ve experienced with a supplier. It was also a decision that still resonates to this day.

 

Ethical Procurement Links

Please read the Institute of Supply Management’s Ethics and Business Conduct or Chartered Institute of Procurement & Supply’s and National Institute of Governmental Purchasing’s Ethical Procurement code.

 

What are your thoughts about this subject? Have you ever experienced this blatant of a situation in a supplier-procurement engagement?

 

ciao…mam

Michael Massetti is an Executive Partner with Gartner who really does enjoy being a supply chain professional! Seriously. All opinions are my own.

 

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