Purchasing Laws, Ethics, and Benchmarking:
A review of performance benchmarking processes and challenges, purchasing laws and ethical requirements
Hua, Li
Embry Riddle Aeronautical University Student
LGMT 536 Purchasing and Supply Chain Management
Maggie Rivers
November 22, 2021
There are three basic types of performance benchmarking: strategic benchmarking, operational benchmarking, and support-activity benchmarking (Monczka et al., 2020). A big difference is that strategic benchmarking requires direct comparisons against best-in-class competitors. For operational and support-activity benchmarking, a firm can study the performance and methods of noncompetitors (Monczka et al., 2020).
Formally, the benchmarking process requires measuring performance against that of best-in-class companies, learn how those companies achieve their performance level, and using that information as the basis for establishing a company’s performance targets, strategies, and action plans (Monczka et al., 2020).
When benchmarking performance, a company will consider several categories such as price performance, cost-effectiveness, revenue, economic value added (EVA), quality, time/delivery/responsiveness, technology, innovation, environmental sustainability, asset and integrated supply chain management, administration efficiency, overhead cost, governmental/ social factors, internal customer satisfaction, supplier risk and strategic performance (Monczka et al., 2020).
The benchmarking process involves five different phases for implementation. The first phase is planning a benchmarking target, focusing on a target’s process and methods which could cause a quantitative result. The second phase is analyzing why the benchmarked firm is better. The third phase is integration based on benchmarking findings, establishing internal operational targets and functional goals. The fourth phase is action, which requires translating the benchmark findings into detailed action plans. The last phase is maturity, benchmarking becomes an accepted process for establishing performance plans and objectives (Monczka et al., 2020).
While benchmarking, there are certain challenges. For non-quantitative areas, it’s hard to measure how a manager or executive’s individual skill level contributes to the overall competitiveness and financial performance of their company. Two examples are negotiating skills and how those individuals can obtain good supplier cooperation. This performance is hard to quantify and harder to duplicate. Quantitative challenges are data focused. Having too much data and irrelevant data increases labor hour requirements. Focusing on short term financial and operating data means that managers may fail to make the adjustments required to meet longer-range or strategic measures. In this situation the financial and operational data take so long to be analyzed that they are ultimately meaningless (Monczka et al., 2020).
Uniform Commercial Code (UCC) is not actually “the law” of commercial contracts. For the most part, the UCC is a “gap-filler”. In general, the “standard terms” as dictated by the UCC are applicable unless the parties agree to something else. It is important to note that UCC does not apply in international contracts. The goal was to reduce the number of state-by-state variations. Every U.S state (with the exception of Louisiana) adopted the UCC (Monczka et al., 2020).
Commercial law is defined as that” body of law that refers to how business firms enter into contracts with each other, execute contracts, and remedy problems that arise in the process (Monczka et al., 2020).
Contracts law essentially determines the nature of agreements that are enforceable and create legal rights between the parties (Monczka et al., 2020). Thus, contracts law implementation requires a framework of commercial law to exist.
Several things must take place so the manager avoids jeopardizing his career through purchase ethics violations and to prevent conflict with the chief procurement officer (CPO). Ideally, the manager could check the company guidelines on what constitutes unethical behavior. If the company’s guidelines fail to address a situation, the manager could rely on the institute for supply management’s (ISM) Standards of Conduct.
The ISM Standards of Conduct is a powerful document. It holds the purchasing professional to the highest levels of ethical conduct. Companies of all size from many industries have used the code of ethics as a guide when developing their own ethical policies (Monczka et al., 2020).
In the assigned ethics case, one should advise the manager that he definitely could not follow CPO’s request ethically. Especially, if other suppliers exist who can match or beat the CPO’s recommendation. It is blatantly unethical for a buyer to primarily award business to a supplier because the buyer, the buyer’s family, or relatives of the buyer have a direct financial interest in a supplier (Monczka et al., 2020).
If the manager performs the request, he might be breaking applicable laws. He should be informed that, if caught, it will tarnish both the manager’s and company’s reputation. At a minimum, the buyer will probably lose their job, and the company may also pursue litigation (Monczka et al., 2020).
If the CPO’s recommendation is competitive, the manager still needs to elevate the personal conflict of interest higher. This will allow the appropriate level manager to decide whether to use the CPO’s recommendation or to use another company.
References
Monczka, R., Hanfield, L., Giunipero, L. Patterson, J., (2020). Purchasing and Supply Chain Management, 7th Edition. Cengage
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