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Kyerico Company Limited is a relatively young company located in Ghana which has been in existence for the past 20 years, conducting its primary business with sourcing and supply of eye drops from suppliers from India, China and Germany. In line with Kyerico's cooperate social responsibilities and their drive to embark on sustainable procurement, the procurement manager of the company paid an unannounced call to their overseas suppliers. Nonetheless, the ethical issues spanned from both external and internal sources with some external companies such as Felico, Alexco and the internal issues arising from Kyerico itself.
According to Mullins (2005), ethics is concerned with the study of morality: practices and activities that are considered to be importantly right or wrong, together with the rules that govern those activities and values to which those activities relate.'
The following were some of the ethical issues or findings document on their audit sheet:
Demographics of Felico suppliers was not mentioned in the case study and for that matter, it can be deduced from the list of other suppliers locations that it is located in India.
Health and Safety Issues
The above mentioned supplier is located in India - a country where the health and safety issues of some employees are not taken to heart by employers. Health and safety issues comprises of the provision of safe and portable drinking water for staffs, provision of personal protective equipments like safety overalls, goggles, hand gloves, safety boots and the likes. As part of any factories act, the health and safety issues of any company by legislation should take into account the health and safety of every employee. Precondition for selection and regular unannounced visits.
During the unannounced audit carried on the suppliers overseas, the audit team from Kyerico uncovered the use of children or underage staffs in Felico suppliers. Using or engaging underage staffs for the production of eye drops or any form of work under the United Nations rules is highly prohibited and as such strict sanctions will be meted out employers who are found culpable. Further, the children who are found in the suppliers base are to be encouraged to take up schooling and should in case access to schools are difficult, Felico as part of their cooperate social responsibility should establish school in and around the community in which they operate. This will help eliminate the number of underage child working in the production line.
Frightening and punishing staffs as a measure for increasing performance or productivity when staffs are not able to complete their job. Instead, key performance indicators should be put in place for all staffs as bases for their performance. Should in case a staff does not met the set out KPI's over a number of attempted periods a letter should be served to the person to sit up and followed with dismissal.
Kyerico Company Limited
Further in house audit uncovered a whole lot of inconsistencies in Kyerico's stock both the automated and physical stock. The audit sheet recorded an employee pilfering some of the eye drops in Kyerico's warehouse and selling them on the market stall. Hence, a security check system should be put in place where at every stage, an authorising officer should approve of every stock as well as CCTV cameras should be installed.
At Kyerico, a Female buyer - Asantewaa complain to the Procurement Manager she was not remunerated as much as her male colleagues were receiving. Thus, the labour laws and the international trade laws do not encourage discrimination of gender. Equal work for equal pay for all staffs irrespective of one's gender should be applied to all employees.
Business Gifts and Hospitality
The aforementioned supplier is based in Germany sponsoring some of the senior managers of Kyerico have been lodging in exclusive hotels and attending other events such as banquets and premium sporting activities.
Although Alexco is gaining 40% of Kyerico's orders despite the cost of the eye drops against the backdrop of supplying quality product is not prudent businesswise for the senior managers of Kyerico to be seen in the books of Alexco. This can lead to corruptible practices were favours are most likely to be returned to Alexco by the said senior managers. Thus, the senior managers should maintain a professional working relationship with the supplier.
Ethical issues in our business world are dear to the hearts of all stakeholders both locally and internationally. Thus any attempts by an employer or supplier to undermine the organizational code of conducts and the legislations of business laws where the company is situated will face the law.
Mullins, JL (2005) management and Operational Behaviour, 7th edn. England: FT Prentice Hall
The Chartered Institute of Purchasing and Supply (2006), management in the purchasing function.
QUESTION ONE (1b)
Create a set of rules for ethical behaviour that will enable Kyerico to prevent these internal and external issues occurring in the future.
Organizations do not exist in isolation but rather exist on its moral principles and guidelines to which create a competitive advantage for them in their industry. For the organization again, its industry demands for greater accountability in society, businesses and other organizations are progressively more recognizing the need to measure, monitor and report on their social and ethical performance. Thus a set of ethical rules are created to fore fill the above needs: hence the code of conduct or ethics.
Code of ethics is 'a set of moral principles or values, used by organizations to steer the conduct both of the organisation itself and itself and its employees, in all their business activities, both internal and in relation to the outside world'. (Cole 1996)
In the past, many organizations resorted to the use of philosophical approaches in establishing their ethical rules. Some of these are: Deontological ethics, Utilitarianism, Teleology and Ethical egoism.
Deontological ethics is in keeping with Scripture, natural moral law, and intuitions from common sense. The word "deontological" comes from the Greek word 'deon' which means "binding duty." (Moreland 2009)
According to Moreland 2009, a utilitarian approach to morality implies that no moral act or rule is intrinsically right or wrong. Rather, the rightness or wrongness of an act or rule is solely a matter of the overall non-moral good produced in the consequences of doing that act or following that rule. In sum, according to utilitarianism, morality is a matter of the non-moral good produced that results from moral actions and rules, and moral duty is instrumental, not intrinsic. Morality is a means to some other end; it is in no way an end in itself.
Kyerico Company Limited as part of their audit processes uncovered a lot of ethical issues that were not adhered to by both their internal and external customers. These ethical issues have been identified and as such the following set of rules below have been developed to help eliminate these issues. Ethical issues identified includes: Business Gifts and Hospitality, Discrimination, Pilfering, Intimidation, Child Labour and Health and Safety Issues.
Following a set of rules for ethical behaviour proposed below, Kyerico can prevent these internal and external issues from occurring in the future.
Business Gifts and Hospitality
Business gifts - Business gifts, other than items of very small intrinsic value such as business diaries or calendars, should not be accepted.
Hospitality - Kyerico employees when sponsored by a supplier (eg. Alexco suppliers in Germany) to attend an event, the said employee upon his or her return should write a report on the event attended explaining how the event will benefit the company's strategic relationship with the supplier in future. Also, how he or she will not be influenced in any way whatsoever to act corruptible to favour the supplier. Thus the frequency and scale of the hospitality should the influence the recipient to act in ways to favour the supplier.
Both Kyerico and their Suppliers should develop and implement a policy of equality for all in the workplace with no discrimination on the basis of race, social order, religion, nationality, age, gender, marital status, disability, union membership or political affiliation. As illustrated in the case study (Asantwaa's gender). This breeds apathy and nepotism at the work place which primarily affects production as well as negatively transferred to their relationship with clients.
Kyerico as part of strengthening their internal security mechanisms with regards to warehousing and inventory taking, a system of double checks or authorization or their orders should be put in place to curb pilfering. Also email communications with retail outlets should be cancelled and should incase an email is sent for an order, to should be sent by an authorized person followed later with a hard copy of the request order within 24 hours.
Kyerico should seek to ensure that all their organisation's suppliers do not engage child at their work place and as such their suppliers should adhere to the following set of rules:
Suppliers as part of their cooperate social responsibility shall take it up upon themselves to eliminate all forms of child labour by providing to communities they operate in with schools or at least scholarships to underage children found to be performing child labour. This will facilitate their stay in schools whilst helping to eliminate child labour.
Suppliers shall not employ underage children in accordance with the provisions of ILO Convention 138 and the United Nation's Convention on the Rights of the Child.
In this context, 'child' according to the above conventions refers to any persons under 15 years of age, unless local legislation on the minimum age requires
All suppliers found to be engaged in child labour for their production or services shall have their contracts terminated as stipulated in their contracts.
Suppliers should abuse or intimidate their employees under no condition whatsoever. The suppliers must develop a set of disciplinary measures and KPI's for all actions and performances and should be well documented as well as copies given to all employees together with their job descriptions.
Suppliers' employees who are not capable of reading the above disciplinary measures and their job description should ensure that it is well interpreted and well understood by the employee before they sign the document.
Health and Safety Issues
All suppliers must have present of employ a health and safety manager to occupy a senior management position. His or her core functions will be to develop, implement and monitor policies and procedures; as well as training all employees on health and safety issues.
As part of the health and safety managers responsibilities will be to ensure that, all employees of the supplier a fully equipped with the appropriate personal protective equipments (PPE's) to carry out their work such as helmets, safety boots, goggles, nose mask, gloves, etc
Suppliers' employees are to work in an area where issues with clean drinking water, toilets, less noise and free from any hazardous substances that can harm or affect the employees.
The suppliers company must attain and maintain at least one internationally recognised standards on quality - ISO certification.
All the set of ethical rules created afore, will be fully materialized when the employers both Kyerico and their suppliers show full management support or commitment for its implementation to make it a success. By doing so the top management should monitor the ethical rules, consequences of these ethical issues should be clearly stated and the rules must be well understood by all and easy to abide by
Cole, GA (1996) Management Theory and Practice, 5th edn. London: Continuum.
Kamm, F. M. (2007). Intricate Ethics: Rights, Responsibilities, and Permissible Harm. New York: Oxford University Press. ISBN 0-19-518969-8
Moreland J.P (2009). www.equip.org/articles/ethics-theories-utilitarianism-vs-deontological-ethics/. Online date 29/01/2013 14:20pm
Waller, Bruce N. 2005. Consider Ethics: Theory, Readings, and Contemporary Issues. New York: Pearson Longman
QUESTION TWO (2)
Critically evaluate how the procurement function can contribute to product development by the improvement of internal and external relationships
Ensures continuity of supply, maintaining sound cooperative relationships with other departments; develop staff policies, procedures and organizations are to ensure the achievement of the above mentioned.
Muhlemann et al (1992) throws more light on the procurement functions saying 'providing information on new products, processes, materials and services. This should also advise on probable prices, deliveries and performance of the products under consideration by the research, design and development functions.'
According to van Echtelt et al (2008), when engaging in product development as procurement function; three activities should be done parallel to each other in other to achieve the goal. These activites include:
Strategic management processes - it is focused on providing the infrastructure for future technological collaboration with suppliers. Here one can identify the most preferred company to collaborate with.
Operational management process - this relates to management of individual development project which helps in the decision where suppliers are given the access to contribute their input to technological projects.
Collaborative processes - involves fostering and implementing technological collaboration with external partners.
Kyerico's Internal and external relationships
Being involved in cross functional teams
Muhlemann, A. et al... (1992) Production and Operations Management, 6th edn. London: Pitman Publishing.
Van Echtelt, et al... (2008) Managing Supplier Involvement in New Product Development: A Multiple Case Study, Journal of Product Innovation Management, (25): 180-201
QUESTION THREE (3)
Critically evaluate the benefits and risks to sustainable procurement policy of the following supplier relationships:
In an era of globalization and the ever changing business trends, procurement managers are tasked with the procurement of goods and services in other for their organizations to remain competitive in their industry. It is on this backdrop that, issues of sustainable procurement have emerged whilst maintaining good supplier relations.
Sustainable procurement comprises of giving due consideration to the impact of the procurement on the environment, on the community, and on the social conditions of those delivering or receiving the product or service. It focuses on what your products are made of, where they come from, and who has made them as well as whether you need to make the purchase at all.
If you consider all these factors you can make better choices and achieve the best overall value for money on a whole-life and long-term basis. Mr. Akrofi 2013 (cited in Welsh Procurement Initiative - Sustainable Public Sector Procurement Guidance 2004)
Supplier relationships in this light can be group into three categories with their various benefits as well as their risk factors and these relationships are: Long-term supplier relationships, Preferred suppliers and Public Private Partnerships (PPPs)
Long-term supplier relationships
It is generally as the result of a strategic purchasing approach. Strategic purchasing approach is a proactive long-term supplier relationship where closer, cooperative links with key suppliers to increase boundary-spanning activities which in turn links buyer and supplier at different levels within an organization. Handfield R, et al 2005.
A close or long-term relationship with suppliers breeds commitment and increases the magnitude of the relationship between the buyer and the supplier. In doing so, the primary objectives of long-term supplier relationship will be to maintain competitive advantage for both the buyer and supplier. Other benefits of a long-term supplier relation are the sharing of innovation towards the development of need products and alignment of buyer-supplier strategies. This can only be materialized when there is a lot of collaboration amongst all the stakeholders through the barter of ideas and requirements of the purchaser. When these requirements are brought to the fore, the supplier can then apply its human and physical assets to meeting the requirements sustainably whilst a better continuity of supply is established. There is not to say that a long-term supplier relationship does not come with its own risks or disadvantages - complacency and financial overdependence by either party. Here the buyer is likely to over specify requirements before or during the production phase whilst the effect of the former trickles down unto the criteria for the determination of the price of the needs or goods.
Suppliers who without fail deliver superior goods and services on time and at reasonable prices are termed as preferred suppliers. In building a preferred supplier database, pre-qualification criteria (VAT, Income Tax, financial capability etc) are considered against a specific set of sourcing criteria. Thus only suppliers who make it through the pre-qualification stages are those that are included in the preferred supplier database.
Preferred supplier database benefits and organization in the following ways including: fewer suppliers are left to be managed and develop after going through the pre-qualification stage on the bases of selection based on sustainable criteria. Due to some reasons, it is not every supplier who gets pass the selection stage to be included in the database. This poses a great risk or a disadvantage to the organization since the possibility of missing out on innovations from non-preferred supplier / buyer unresponsiveness to change either in their price quotation or specification.
Public Private Partnerships (PPPs)
It is made between public and private sector organizations
Goes back to the earliest construction in the United States
Used extensively in Europe and other countries
Significant renewed interest in the 1980s
A public-private partnership is a contractual agreement formed between public and private sector partners, which allows more private sector participation than is traditional
A public-private partnership exists when public sector agencies (federal, state, or local) join with private sector entities (companies, foundations, academic institutions or citizens) and enter into a business relationship to attain a commonly shared goal that also achieves objectives of the individual partners.
Benefits: sharing financial risk and best practice,
Risks or disadvantages: inequalities in staff pay and conditions, lengthy and expensive payback terms