L4M4- Chapter 3- Compliance with sourcing Flashcards
What are the key areas of regulation that organisations must follow?
Data protection
Ethical Practice
Health, safety and environment and workers rights
Marketplace competition
Product safety standards
What is the BSI?
British standards institution
Produces technical standards that products must conform to
What difference does being in the public sector have on legislation applied to sourcing?
Bound by the laws of the nation they operate in
Must still comply with laws that affect the private sector
In the UK they must also abide by:
1) The freedom of information act- anyone can access info held by a public sector organisation
2) UK public contract regulations- govern how public sector organisations should carry out procurement
Public sector tendering over a certain amount must be open to competition
How does the EU Public Procurement Directive affect tendering?
Public sector tendering over a certain amount must be open to competition
Must start with advertising a call for competition in the OJEU (in the UK it is the Government Contract Register)
If you are not ready to issue a call for competition you may issue a PIN
What is a call for competition?
A notice released by a buying organisation through OJEU to make potential suppliers aware they may participate in tendering. It gives info about the process and allows for involvement
What is the OJEU?
Official Journal of the EU
In the UK it is the Government Contract Register
What is a PIN?
Prior information notice
A notice released to suppliers through the OJEU that flags the intent to tender in the future
The UK public contract regulation 2015 contains rules for public sourcing, what are they?
Procedures must be followed for format of the tender (inc advertisement, eligibility and information provided by suppliers)
Stages that must be followed when conducting a tender
Timescales
Contract award criteria
How is private sector sourcing different to public?
Private may choose not to conduct competitive tendering
Private sector are still bound by the laws of the country in which they operate
Main purpose is to make a profit
Also need to keep stakeholders and customers satisfied
What is different about third sector sourcing/ not for profit
Similar to private sourcing
Some charities may not have specialist procurement teams/ knowledge
Still bound by the laws of the country in which they operate but also have some additional regulations vs private eg. things that regulate how they operate depending on which country they are in
They do not need to make a profit but are looking to support causes they deem important
Mainly NGOs and funded by donations which means cash flow can be difficult so procurement teams still need to save money
What are the ESG considerations within sourcing?
Corruption- inc cultural considerations (what is and isnt accepted- aka cultural relativism), anti corruption legislation
Bribery
Fraud
Conflicts of interest
Human rights
Modern slavery
What is cultural relativism?
This is where in different cultures there will be different perceptions on what is and isnt acceptable. Ie what is normal may be different from culture to culture. An example is facilitation payments.
What are facilitation payments?
AKA a grease payment
A form of bribery in which a sum of money is payable secure or speed up the delivery of an action.
In some cultures it is acceptable but in others it is not.
What is a code of conduct?
A series of rules set by an organisation that outline suitable behaviours and values. This is used to uphold uniformity and standards of an organisation
What is bribery?
Corrupt exchange of something of value by one party to ensure a favourable outcome
They can take other names, for example a facilitation payment could be considered a bribe
It is not always explicit, it can for example be gifts/ hospitality
What is fraud?
It involves someone unlawfully obtaining funds or resources for their own benefit
What is workplace fraud?
Small scale thefts taking place in the workplace that are difficult to detect e.g. taking inexpensive stationary home
What is embezzlement?
Rather than direct theft or money, individuals misuse funds or resources that they have authority over that benefit them
What are the 3 reasons someone commits fraud?
Perceived pressure- e.g. personal debt
Perceived opportunity- e.g. vulnerability in a system allows an individual to exploit
Rationalisation- e.g. internal dialogue justifies it (I will only do it once)
What are the common types of fraud?
Advance fee- where the victim is asked to pay up front but never receives the goods or services
Corporate fraud- targeting an organisation
Identity- A false identity is created to commit the fraud
Individual fraud- targeting one person
Can include cybercrime- phishing, account theft, money muling (where people receive stolen money and are told to withdraw it), fake official requests
How can fraud affect supply chains?
Often it is via trust or through lying in a contracting process e.g. it is fraudulent to deliberately exaggerate the scale of capacity when agreeing a contract
What is a conflict of interest?
a situation in which a person is in a position to derive personal benefit from actions or decisions made in their official capacity
Example would be nepotism (using perceived or actual power to benefit friends and family)
Conflicts of interest can be declared and tracked to ensure fair audit and not to incriminate people
What is the universal declaration of human rights?
30 rights that apply to the UN from 1948. Includes the right to freedom, free speech etc. They are not guaranteed in every country
What can a procurement professional do if they suspect a supplier of modern slavery?
Due diligence checks
Contact the modern slavery helpline if UK based
Review the suppliers conduct documents to ensure they reject slavery
Introduce yourself to workers when visiting
How should the public sector source?
Find best value for money (not always cheapest, may be best ESG)
Held accountable to public scrutiny due to funding
Openly auditable
Use competitive tendering to ensure transparency and ethical conduct
Buyers can still use different tender processes (open, restricted, competitive with negotiation, competitive dialogue and innovation partnership) but need to be selected appropriately
What are the pros and cons of open procedure tenders for public sector?
Used for well specified requirements with no pre-requirements
Allow for a wide range of submissions and highly competitive
Means theres a lot to review
What are the pros and cons of restricted procedure tenders for public sector?
Used when interest is likely to be high. Buyers may want to assess technical and financial capabilities and choose a selected group of suppliers
Due to clear spec there should not be follow on negotiations
What is competitive with negotiation tenders for public sector?
Suppliers that respond to the call for competition are invited to join by invitation only and lets bidders know there may be negotiations following their bids
This can help get the best possible outcome for the buyer
What are the pros and cons of competitive dialogue tenders for public sector?
Similar to restricted but allows the buyer to speak to suppliers after selection but before evaluating bids
When buyers have clarity on the specific requirement they can discuss with the suppliers and issue/review final bids
What are the pros and cons of Innovation partnership tenders for public sector?
This is effectively a new to market product
suppliers require expertise and capacity and can form a partnership to take an idea through to realisation
What are the key stages within the procurement process that must be followed in the public sector?
1) Specification- requirements, avoid favouritism, define requirements, methods required
2) Selection- review regulations, exclude unsuitable suppliers, review financial and technical suitability
3) Award- MEAT, investigate abnormally low tenders
What are the regulatory challenges of importing internationally?
Documentation
Duty and Tariffs
Customs controls
Exchange rates/ currency
What is an NGO?
Non Governmental organisation
Usually these are non profit making but have an important role in the economic development of developing countries. Including for example after natural disasters
Also fund caregiving e.g. Oxfam
Also highlight topical issues and aim to correct them- e.g. WWF
What documents are used within the EU for movement of goods?
T1 document- must accompany goods whilst in transit
Import/Export license
Single Administrative document- used for goods either entering or leaving the EU
Computerised transit system
Customs declaration service- used to submit import/export requests
What is a BOI?
Binding Origin Information
A legally binding decision on the origin of goods provided by an EU member state (can be difficult if an element of production, testing or manufacture happens in another country)
Used in the EU and EEA
What is preferential and non preferential origin?
Both are types of origin used with EU and EEA and describe whether certain criteria have been fulfilled
Preferential = goods traded between countries and no duty or charges apply
Non preferential= goods that are subject to tariff quotas or commercial regulations
What is a certificate of origin?
Shows the economic nationality of goods in international trade
Which documents are used for international imports and exports (outside of EU too)?
Purchase order- purchase request
Bill of lading- What is required of those involved in transporting, carrying and consigning goods until delivery
Insurance certificate- Coverage of a suitable insurance policy
Certificate of origin- officially specifies the origin of a delivery of goods
Carnet- allows free movement of goods for a specified purposed, within a boundary or along a route (free movement is allowed in the EU but not in Japan, Singapore and India)
Clear contract between buyer and supplier
What are duties and tariffs?
Duty is a tax charged when importing into a country and must be paid before goods can enter
Tariffs outline the specific rules like the quantity of goods that can be imported. Tariffs can apply to import of specific commodities. Duty charges can be found within the tariffs
What is ad valorem?
An estimated value of the goods being imported, based on the value of goods plus other factors like insurance, freight etc.
What is a trade bloc?
An economic group formed of different countries to form preferential trade conditions
Can differ by level of cooperation and integration:
- Common market
- Free trade
What is a tariff?
Rules regulating the type of good, their quantity and their import duty from specific countries
What is import duty?
Taxes collected on goods imported from another country- the amount of tax is based on its value
What does a stronger currency mean?
A stronger currency is, when doing a currency exchange, the one which can buy more of the other with 1 unit. Aka it is worth more than the another nations currency
E.g. 1 EUR buyer 15 South African Rand the Euro is stronger
1 pound buys 1.3 EUR the pound is stronger
1 EUR buys 0.8 Dollars then the dollar is stronger
Currency valuation is based on FOREX trading and can be due to conflict, economic stability, political leadership etc of a country
How is currency regulated for international sourcing?
Access to the currency- not all currencies are freely traded, some termed ‘exotic’ are infrequently traded (e.g. Colombian peso). Some currencies are non convertible and other may align with the dollar
Ability to make and receive payments- check to make sure you can pay when bills are due
General considerations- there has been a general tightening of payments to safeguard against money laundering and terrorism
What is dollarisation?
Alignment of a national currency to the dollar
International sourcing can be:
Standard product sourcing from another country
Outsourcing
Offshoring
What are the benefits of international sourcing?
Reduced cost
Exposure to world class tech
Availability of materials and skill not present in your country
Quality
Wider selection of suppliers than a national view
Collaboration between nations
Stimulate growth in other countries
What are the risks of international sourcing?
Lead times
Import/export requirements and regulations
Currency exchange
Payment methods and guarantees inc letters of credit
Cultural differences
quality issues
Logistical problems
IP problems
Relationship/trust challenges
Hard to resolve conflicts
Political challenges blocking trade
Ethical standards
Language barriers
What is a letter of credit?
A letter from a bank guaranteeing that a buyers payment to a seller will be received on time and for the correct amount
What would be some reasons to limit the use of imported goods?
National defence products (strict controls and IP)
Protecting the end use (could be harmful)
Protection of ‘infant’ industries nationally which you want to support (or could be damaged by international competition)
More strictly monitor goods from a country that has historic problems
What is an Incoterm?
Commercial terms that cover the allocation of cost and transfer of risk between buyer and seller.
Abbreviated to 3 letter codes.
Buyers can take control over the level of transport and delivery risk by defining how it should be carried out within a contract or a purchase order
Crucially outline where a deliverable is no longer the responsibility of the supplying organisation and transfers the risk to the buyer
What do Incoterms represent?
The big benefit is an incoterm removes the need for lengthy contract terms by outlining the terms of the contract/ PO with regards to transport or deliver.
The point at which goods are considered delivered
Who takes responsibility for transport and in what form it takes
Which party pays insurance
Who pays for duty/tariff
What types of payment mechanism are there for international trade?
Top one benefits the buyer the most, the bottom one benefits the supplier most
Credit account- supplier delivers good before receiving payments but will be paid within a set number of days from invoice
Bills of exchange- its a draft, essentially a payment instruction- a promise to make payment at a specified time. They can take many forms but some examples are:
1) Term/time draft- guarantee from the buyers bank where the supplier retains the title of the goods until the buyer receipts them where payment is made
2) Sight draft- guarantee from the buyers bank where the seller retains the title until receipt and payment is made- there can be no delay from receipt to payment
Letter of credit- guarantee from a bank that payment will be made from an escrow account when the conditions have been agreed
Cash in Advance- buyer pays before receipt
Why is it lower risk as a buyer to specify prices in your own currency during international sourcing?
It is a simple way to safeguard against potential currency fluctuations. However, if the currency got weaker and the suppliers currency got stronger then the supplier would benefit if the contract takes time to deliver.
Paying upfront removes all risk but benefits the supplier most
How can you mitigate risk with currency and international sourcing?
Currency hedging
Paying upfront
Agreeing to pay in your own currency
What is the vienna convention?
UN convention on the international sale of goods- a treaty that established a uniformly recognised framework for international trade
It is designed to be a non bias, uniform approach to international trade and overcome local laws and barriers
What is CISG?
Contracts for the international sale of goods
What is WTO?
World trade organisation
Who regulated international trade?
CISG, WTO through the vienna convention
What is the CIPS code of conduct?
Helps abide by ESG and source responsibly
It is a set of values, behaviours and actions that CIPS members must uphold as part of their professional practice
What are the 5 areas of the CIPS code of conduct? PEMEF
Promote the eradication of unethical business practice e.g. due diligence, knowledge development, flag when stuff comes to light
Enhance and protect the standing of the profession e.g. not accepting bribery
Maintain the highest standards of integrity in relationships e.g. no conflict of interest or fraud
Enhance the stature of the profession e.g. developing skills
Full compliance with the laws- adhere to the laws of the country
What is an ethical code of practice?
A document outlining an organisations accepted behaviours and principles of working
They can vary greatly by profession, sectors and companies
There may even be conflicts between organisations on adopted practices
In order for KPIs to be effective and measurable they need to be SMART , what does it stand for?
Specific
Measurable
Achievable
Realistic
Time bound
What sort of KPIs could be used for ESG KPIs?
Need to demonstrate the suppliers commitment to ESG goals:
- measurement of waste sent to landfill
- Consumption of energy on an annual basis
The KPIs should not place too much of a burden on the supplier as it could be costly or time consuming to meet
Sometimes verbal commitment to ESG is not enough, what processes can suppliers have in place to promote commitment to ESG and ethical considerations?
Accreditations from professional bodies
Internal policies
Mission statements on a company website
Internal processes that govern individuals work
Monitoring suppliers ethical performance
Encouraging dialogue with suppliers on improvement processes
Identifying and addressing conflicts of interest
What is an audit?
An official inspection by the procurement organisation or an independent body to ensure compliance with requirements and standards
It is an objective, fair and repeatable way of ensuring a suppliers performance is upholding ethical standards and practices
What is scope creep?
Changes in scope or requirement over time that are intentional or unintentional but result in adjustment for time, resources or money
E.g. time wasted observing the incorrect things
Not being properly completed
Money wasted on unnecessary checks
Misinterpreted results
Over burden of resources on buyer and supplier
Why should audits be unannounced if possible?
Prevent suppliers from taking short term actions to make it appear like it was abiding by requirements:
- creating documents the auditors may want to see
- Cleaning equipment to give the impression of being well maintained
- Suddenly mandating the use of PPE
- Coaching staff in ways to pass an audit
Attempting to do the above is considered unethical practice.
What is a supplier development programme?
Carried out by a buyer to strengthen the relationships with suppliers and to strengthen there capability and competencies. It is often a collaborative approach to solving problems.
What is sustainable development?
Development that meets the needs of the existing population without depleting resources for future generations/populations.
Can form part of the ESG process and practices for an organisation
What sustainability questions can be asked about a supplier during the product life cycle?
DURING MANUFACTURE:
How efficient is the suppliers manufacturing process
Are there harmful by products
Are they sourced under challenging circumstances with conflict (e.g. diamonds)
Are staff protected from harm?
IN USE, STORAGE or FURTHER MANUFACTURE:
Does it need to be stored, handled or used in a way to prevent harm
DISPOSAL:
Can is be recycled?
How long will it take to biodegrade
Does it need special disposal techniques?
What is a direct or non direct impact?
A direct impact is where an organisation carries out an activity with the intention of imposing a positive or negative social impact. E.G. changes to HR policy- making a conscious effort to employ local people, banning smoking on site etc. the change directly impact employees and in some cases the wider public
Indirect are social impacts that are unintentional
What are some examples of standards within ESG?
ISO 20400:2017
The sustainable agriculture standard (rainforest alliance)
Standards for hired labour (fairtrade standards)
Required standards of a buying organisation can be outlined in the specification.
Standards are recognised globally
What is offset/ industrial participation? AKA offset requirements
Often done by a government with an international sourcing agreement. An agreement that a foreign organisation will invest into the country of the procuring government as part of its contractual obligations
AKA the effort to ensure that the process of manufacturing goods benefits the economy of the country manufacturing them
Examples could be investing in local housing, research, access routes
Which areas of compliance will need to be met to be compliant with law, regulation and standards?
- Data protection
- Ethical practice
- H&S
- Environmental
- Worker/employment rights
- Marketplace competition
- Product safety standards
What is a harmonisation code?
A standardized numerical method of classifying traded products. It is used by customs authorities around the world to identify products when assessing duties and taxes and for gathering statistics
What are the 4 groups of incoterms?
C- The seller arranges for carriage but once dispatched its obligations are complete
D- Obligation extend to the delivery of goods at the specified destination
E- The sellers only duty is to make the goods available at its own premises
F- Seller undertakes all pre carriage duties but main carriage arrangements are responsibility of buyer
What are the 5 sections of the CIPS code of conduct?
1) Enhance the standing of the profession
2) Maintain the highest standard of integrity in all business relationships
3) Eradicate of unethical business practices
4) Enhance the proficiency and stature of the profession
5) Compliance with laws and regulation
Which KPIs could be related to ESG?
Amount of waste sent to landfill
Energy consumption
Carbon emissions
UK public contract regulations 2015 contain rules on what for public sourcing?
Procedures to be followed e.g. advertisement
Stages a buyer must follow
Timescales
Contract award criteria
Which incoterms are specific to transport in water?
FAS- free alongside ship0 named loading port
FOB- free on board- named loading port
CFR- cost and freight- at named port
CIF- Cost insurance and freight- at named port
What are bills of exchange?
Often referred to as a draft and is basically a payment instruction
Time/term draft- supplier owns stock until buyer has receipted them, then gets paid
Sight draft- Supplier owns stock until buyer has receipted and paid
What is an escrow account and what type of payment does it sit under?
A third party account used to facilitate international transactions
Falls under a letter of credit
Will be paid once the conditions in the letter are met
What is a harmonisation code?
Used by customs to classify items being shipped
6 digits
