Code of Ethics in Purchasing

The broad objective of Purchase Department is to meet the material and service requirements of the internal customers of an enterprise by maintaining regular flow of materials/ services by following the principles of purchasing viz. to purchase at the right price, the right quantity, of right quality, at a right time and from the right source. In carrying out purchasing responsibilities, the enterprise shall endeavor to adopt the most suitable Purchase Policy to achieve the best results keeping in view departmental objectives and overall needs of the business enterprise. In framing Purchase Policy, CODE OF ETHICS needs to be defined.


Ethics (from Greek ???? meaning “custom”) sometimes also is referred as moral philosophy, is the guiding principles of practicing norms.

Ethics is about fairness, virtues, duty, obligation, rights, justice and a sense of honesty, exercising diligence judgment by making a choice between right and wrong; good and evil.

Statutory obligations, Social norms, Company Policy and Practices govern ethical issues. The specific operating

policies, which regulate acceptable and non-acceptable behavior constitute the “Ethical Policy”.

Corporate Ethical Policy is needed by enterprises to define values & behavior guide-lines, to establish framework for professional practices and responsibilities, and to discipline and self evaluate the work practices. Adherence to the ethical policy is essential to maintain, protect and further the reputation of the enterprise for fair and ethical practices among customers, shareholders, suppliers, business associates, communities, fellow employees and statutory bodies. Business ethics set the standard on how the business shall be conducted. They define the value system of how one operates in the marketplace and within her/his business.

The Code of Conduct or Code of Ethics is an organisation’s policy statement and defines ethical standards for sound corporate governance, that involves systematizing, defending, and recommending concepts of right and wrong behavior. The Code of Conduct not only establishes the organization’s values, but also spells out essential practices, behavior, ethics, and business standards for all individuals who are employed by and represent the organization. It is a guide to legal and ethical conduct of an enterprise and to deter wrongdoing and promotes ethical standards. This Code covers a wide range of business practices and procedures and serves as a guide to ethical decision-making. This Code does not cover every issue that may arise, but it sets out basic policies to guide its affiliates. Normally the principles described in the code are general in nature. However, one should also review the enterprise’s other applicable policies and procedures for more specific instructions. 

The Purchase Policy is guided by ETHICS and accordingly Values are defined. Keeping in view the purpose and mission, Objectives are formulated, To institutionalize Purchase Policy, Guide Lines are framed. The Purchase Policy shall be evolved so as to be fair to both the purchaser and the seller. Good Ethical Practices foster fruitful Relationships with the Suppliers, while indulgence in Un-Ethical means for whatever short term gains may damage image of the enterprise in long run. 

The key to ethical action is to behave with integrity that is based on sound Core Values like :

HONESTY (be Principled, Straight – Forward and Fair in all the dealings),

INTEGRITY (maintain the highest standards of Professionalism and Organisational Integrity),

FLEXIBILITY (adapt to change)

RESPECT TO OTHER’S VIEWS (Recognise and Appreciate the views of the suppliers and others by treating others with dignity, respecting individual differences)

RESPECT FOR KNOWLEDGE (acquire and apply leading edge expertise in all aspects of the business for value creation and share with concerned stakeholders as required)

(recognize mutual interests in a WIN-WIN situation)

OBSERVANCE OF STATUTES, RULES AND REGULATIONS (abide by the letter and spirit of the  provisions of the Statutes, Rules and Regulations which may be applicable and relevant to the activities carried on by the Enterprise)

(in conducting the business shall at all times
         render high standards of service
         exercise due diligence
         exercise independent professional judgment


GREEN BUYING (encourage the use of products that minimize adverse environmental and health impacts) 

The broader Policy objectives of the Purchase Department may be : 

To align supply base’s capabilities with company’s strategic initiatives by developing an integrated supply management with focus on Strategic Sourcing that can optimize Total Cost of Ownership. 

By seeing a business as a “Value System” for customers, the shift is towards lean strategic priorities towards growth-oriented targets of lowering cost per unit to gain a competitive edge in a holistic manner instead of mere cost-cutting by whatever means. 

To evaluate and improve the purchasing cycle process in the organization by eliminating non-value added activities in the supply management process through adoption of lean practices in supply chain. 

To adopt collaborative approach with the suppliers to develop new processes, means of saving costs, increasing competitiveness and continuously innovating strategies to ensure a productive partnership between the enterprise and its vendors. 

To optimize overall material cost including inventory carrying cost & cost of stock out. 

In an endeavour to achieve the above goals the enterprise shall nurture and harness skills to develop core competency by adopting right tools and techniques to derive competitive advantage. The Prime Objective is adoption of right practices of APPROPRIATE SELECTION AND SOURCING OF RESOURCES (Material/Services) that leverage ENHANCEMENT IN VALUE CREATION. Waste of resources in any form, in any activity is a “National Waste” and Value Created by whatever incremental improvement adds up to “National Wealth”. Therefore it should be the objective of every one to strive in a “True National Spirit” to work towards “Elimination of Waste and Value Creation”. 

While transacting purchases the enterprise may observe the following “10 COMMANDMENTS” as broader guidelines : 

  • Conduct business with potential and current suppliers openly, fairly, equitably, ethically, honesty and in an atmosphere of good faith.
  • Encourage competition through open, equitable and fair practices.
  • Avoid restrictive sharing of required information/ specifications.
    Avoid the intent and appearance of unethical or compromising practices.
  • Know and observe fair, ethical, and legal trade practices and remain alert to the legal ramifications of purchasing decisions.
  • Strive to maintain/ comply with all applicable environment, safety and health laws and regulations.
  • Promote positive supplier relationships through courtesy and impartiality in all phases of the purchasing cycle.
  • Maintain secrecy & confidentiality within the guiding principles of the company.
  • Strive to obtain the maximum value of each rupee of expenditure while concluding deals with the suppliers in a mutually agreeable win-win situation.
  • Remain committed and behest commitment to promises. Acting ethically is everyone’s responsibility.
  • Take individual & collective responsibility in exhibiting Moral Courage, Transparency, Accountability and Ethical Choices.


“Ethical cultures create trust within and outside corporations. Trust strengthens Relationships and encourages closure associations with suppliers – which propels mutual progress – and ultimately a win-win environment”.

Corporate ethical reputations have a clear impact on the business as business associates place a higher value on a corporation’s ethical reputation that on its financial performance, while ethical lapses in the workplace put those reputations at risk. There are evidences that corporate cultures that self govern based upon the highest standards of ethical behavior help businesses outperform their peers.

Surveys, suggest organizations have a significant incentive to safeguard ethical reputations and strengthen the ethical health of their corporate cultures for business advantage.

Business enterprises now-a-days are committing substantial resources to cultivating ethical cultures to foster and fortify strong ethical practices as a foundation for winning in the marketplace. They are investing to inspire, educate and empower each and every employee to do the right ethical things as defined. “They are understanding the power of culture in transforming business”.


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