This case is based on three Learn How to Source blogposts regarding procurement compliance:

1. The Pillars of Procurement Compliance.
2. Understanding Non-Compliance. Stakeholders’ Reluctance
3. Fostering a Compliance-Driven Culture

Case Study: The Tale of Two Suppliers

In the bustling world of Company A, a forward-thinking tech company, procurement was a central function driving the organization’s innovation and market success. The company prided itself on rigorous procurement compliance standards that ensured both process and commercial integrity. This case study explores a scenario that unfolded within Company A, illustrating the critical importance of procurement process compliance through the tale of two suppliers.

Background

Company A was in the process of sourcing a new range of high-specification components for an upcoming product. The procurement team, led by Alex, was tasked with selecting suppliers that could meet the company’s stringent quality, sustainability, and ethical standards. Two suppliers, Supplier A and Supplier B, made it to the final round of consideration.

Supplier Profiles

Supplier A was renowned for its innovative approach to component manufacturing, boasting impressive sustainability credentials and a solid track record for quality. However, their pricing was on the higher side.

Supplier B, on the other hand, offered competitive pricing and satisfactory quality but had opaque practices regarding sustainability and labor standards.

The Selection Process

Alex and the team initiated a evaluation, focusing on compliance.

Process Compliance: The team conducted a thorough due diligence process, examining each supplier’s adherence to Company A’s procurement policies, which emphasized ethical labor practices, environmental sustainability, and quality assurance. Supplier A’s operations were transparent, with clear documentation supporting their compliance with international standards. Supplier B, however, was less forthcoming with information, making it difficult to assess their adherence to labor and environmental regulations.

Commercial consideration: From a commercial standpoint, Supplier B’s lower prices were attractive, promising significant cost savings for Company A. Supplier A, while more expensive, offered greater value through innovative products and a commitment to sustainability, aligning with Company A’s corporate values and long-term strategic goals.

The Decision

Faced with a challenging decision, Alex convened a meeting with the procurement team to deliberate on the findings. The discussion centered around the importance of upholding the company’s compliance standards, not just for the immediate benefits but for long-term sustainability and brand reputation.

Choosing Supplier B might yield short-term financial gains but at the risk of non-compliance with ethical, environmental, and quality standards, potentially leading to reputational damage and legal risks. On the other hand, partnering with Supplier A, despite the higher costs, ensured compliance with procurement policies, aligned with corporate values, and offered long-term benefits, including enhanced brand reputation and customer trust.

Outcome and Lessons Learned

Company A decided to go with Supplier A. The decision, though initially challenging due to the cost implications, proved beneficial. The quality and innovation of the components received rave reviews, boosting product sales and enhancing the company’s reputation for sustainability and corporate responsibility.

The case of Company A and the tale of two suppliers underscore the importance of procurement process compliance. It highlights that:

• Compliance is not merely a checkbox but a strategic function that safeguards the company’s values and long-term interests.
• Due diligence in supplier selection protects the organization from reputational damage, legal risks, and aligns with broader corporate strategies.
• The value offered by suppliers should be assessed beyond price, considering compliance, quality, sustainability, and innovation.

This case serves as a powerful lesson to procurement professionals about the imperative of upholding compliance standards, thereby ensuring that procurement acts as a steward of the company’s values and a driver of sustainable success.

Questions to be discussed regarding Procurement Compliance 

A Supplier Code of Conduct is a critical document that outlines a company’s expectations regarding the ethical, social, and environmental standards of its suppliers. Integrating such a code into the procurement process enhances transparency, accountability, and sustainability across the supply chain.

Here are five discussion questions that could support the case and foster deeper understanding and implementation strategies regarding a Supplier Code of Conduct:

1. How can a Supplier Code of Conduct be effectively communicated and enforced among current and potential suppliers?
2. What specific ethical, environmental, and social standards should be included in the Supplier Code of Conduct to align with our company’s values and sustainability goals?
3. How can we incorporate the Supplier Code of Conduct into our supplier evaluation and selection process to enhance transparency and make supplier selection more objective?
4. What processes should be established for monitoring compliance with the Supplier Code of Conduct, and how can we address violations effectively?
5. How can we encourage continuous improvement among our suppliers in terms of adherence to the Supplier Code of Conduct?

By addressing these questions, companies can strengthen their procurement processes, enhance supplier relationships, and ensure that their supply chains reflect their commitment to ethical, sustainable, and responsible business practices. Learn more about Supplier code of conduct (Online course).

Note: Illustration to the blogpost “Procurement compliance – case study 1” is created by Chat GPT on March 29, 2024.

Information about our Online Procurement courses in Swedish.