Suggestions for Avoiding Kickbacks by Purchasers

By Flora Lee • 12/14 @ 8:20 • 1,422 Comments

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With the increasing efficiency of information transfer, enterprises generally face high labor costs and low profits. Good procurement cost control is the most critical part of the importer’s profitability. But to recruit a strong professional ability, character and good procurement is not easy, and modern society is a humane society, there are many bad habits. China office of the procurement staff are inevitably able to resist temptation, which leads to procurement to eat kickbacks more common phenomenon, so why in the end procurement will eat kickbacks?

In fact, there are three main reasons for this: first, the price of the product is highly volatile. Sometimes importers can’t determine whether it’s market fluctuations or artificially fluctuating prices, and can only take the means of regular monitoring. But procurement is to exploit the loopholes in which, taking advantage of price fluctuations, boldly eat rebates. Second, the professional properties of the product is strong. The more professional the product, the more categories, product quality is uneven. Procurement mostly can not judge the quality of products from the production process, buy poor quality but high procurement costs of products is a norm. After all, it is conducive to them to eat rebates. Third, the value of goods is high. When the value of the order for the huge amount of goods, just eat a little rebate, are a great test of human nature. In case this purchase is facing financial hardship at this point, it’s hard to guarantee that it won’t falter. These are just some of the more common reasons why many importers are worried about how to resolve this thorny issue. But I would suggest that the importer should first understand the other party’s psychological motivations, so that the importer can better control the China office.

What is the psychological motivation of purchasing staff to take rebate?

Taking kickbacks is illegal in every industry. The illegal level of things, of course, companies are strictly prohibited. There is a Chinese saying: eat people’s mouth short, take the short hand. It means that the receipt of the other side of the gift, we must cooperate or help each other to do things. In international trade, at this stage of the procurement channel is still mainly by the procurement staff through online and offline to find suppliers, sometimes also through acquaintances. In this process, the suppliers, in order to reach cooperation, give the purchase of a cigarette or a local specialty every year. Obviously, the focus is on traditional culture, but the real reason is in bribery. How does the importer control this kind of bribery?

What are procurement staffs thinking when they are taking kickbacks? First of all, people are the product of their environment, and it is inappropriate to strip the buyer’s character of the environment. Since the purchaser is always in the psychological state of the A-party, it is inevitable that he loses his guard in the face of all kinds of sugarcoating from suppliers. Secondly, once the unproductive state of mind is acquired, that original line of defense has crumbled. The first time you take a kickback may be apprehensive, but once and ten times are of the same nature. In the long run, the apprehension ceases to exist. That’s why kickbacks can get worse. Sometimes the news reports that there are companies with purchasing agents that take kickbacks for shocking amounts, even more than the entire company’s profits! No wonder importers who run small businesses are so strict with their buyers.

Once you understand their psychological motivations, taking control is the hard part. Share ways to avoid kickbacks in three main stages: pre-purchase, purchase and post-purchase.

Pre-procurement: the most effective control phase of the corporate anti-corruption effort

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Selection of purchasers

Purchasing is a job that requires fairness and impartiality, so the quality of the buyer is highly required. Importers can promote from within the company or external recruitment, need to pay special attention to the assessment of personal qualities, followed by product expertise and management skills. At the same time, a trial system is used, and a short-term assessment will make the buyer take the job more seriously. It is not recommended to divide the quality inspection to the buyer’s job function, specifically see “Why is it unreasonable for an importer’s buyer to also do quality inspection” . Medium-sized importers may set up a special inspection department or outsource the product inspection to a third party inspection company. For small importers, the best option is to outsource to a third party inspection company due to manpower constraints. The third party can analyze the product quality from a fair and impartial point of view, thus reducing the potential quality risk of the product.

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Performance management

Some buyers take kickbacks because the pay is low and there is no incentive for them to do so. Plus, some suppliers are very good at sowing discord between the buyer and the company. For example, asking about their salaries and promising rebates above their salaries. They even use referrals to other companies as a way to allay the buyer’s fears of being fired from his or her job. That’s why setting reasonable performance can be so important. A portion of the benefits that the buyer brings to the purchase can also be called a “legitimate rebate”. Only this rebate is given by the company, they will be more grateful to the company and work hard.

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Monitoring system

Purchasing is not only the responsibility of the buyer, but finance also plays a role in this. After the quotation from suppliers and buyers, the finance department needs to check the price of the corresponding products. Random checks are done from time to time based on the supplier files compiled by the purchaser. In addition to phone spot checks, executives can visit each other so that they can skip the purchaser and establish a long-term relationship directly with the supplier, avoiding the purchaser’s blackmail of the supplier. In addition, the finance department or other executives can conduct regular market research to keep track of the price of products. This can likewise serve as a warning to purchasers.

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Binding suppliers

In the initial screening of suppliers should be strictly controlled, for example, the cost of bribes paid by suppliers is increased in the contract, and a proportion of the payment is directly deducted if bribes are found. In serious cases, the supplier should be directly removed from the supply chain system, and the general situation should be communicated to all suppliers after verification, which is equivalent to a notice of criticism and demonstrates the importer company’s strict rules and regulations. Of course, for large suppliers, they themselves are not allowed to appear to be bribing. Because they have already guaranteed the quality of their products and have long-standing relationships with importers, they also scoff at kickbacks.

In procurement: management of procurement dynamics

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Internal rotations

The purchasing department could rotate the two buyers every six months, which means swapping the products purchased by the two buyers, and the docking suppliers accordingly. On the face of it, importers would see this as unnecessary and a delay in working time. However, this working arrangement not only enhances comprehensive purchasing power, but also prevents corruption from breeding when buyers and suppliers are in contact for too long. It also improves employee motivation and makes it easier to detect kickbacks. For example, Buyer A was previously in charge of clothing, which was old-fashioned and the fabric was not popular. After shifting to Purchasing B, all aspects of the job improved dramatically, and this historical data is very intuitive to compare.

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Simultaneous procurement

Each category is handled by two buyers who search for suppliers in different regions. Choosing cost-effective cooperation invariably makes competition within the buyers. And use the reduced procurement cost to manage the performance appraisal. But be careful with the operation, otherwise it will lead to malicious competition among the buyers. The importer can ask the purchaser to compare goods, with its own strength to find suppliers with high quality and low price, and at the same time the supplier’s full information open to the whole company’s supervision.

Post-procurement: establishing a long-term optimization mechanism

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Decentralization of procurement authority

Procurement authority can be divided into market procurement authority, price control authority and quality acceptance authority. Different people are responsible for different aspects of the process, and each does not overstep the other. The reasoning is simple: everyone wants a bit of power in their hands, and that’s not a bad thing. Those with power will want to do this function well and gain more power. In the meantime, as long as the oversight system is effectively implemented, procurement will go more smoothly. And the decentralized power will help the different people in charge to do their jobs and will be able to adequately combat the phenomenon of kickbacks.

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Regular reviews

Periodic review of data from procurement efforts can be used both for optimization purposes and to cross-validate some management details through such reviews. Every once in a while, supply chain management optimization is carried out, such as scoring suppliers and making alternate suppliers for products with high market price fluctuations.

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Establishing the right concepts

Both executives and purchasers need to have a clear sense that while purchase price is important, the quality of the product is the key to purchasing. For larger purchase orders, buyers can be asked to provide high, medium and low three different prices of suppliers, executives control the power to place orders. And to do top-level visits to each other, then the power of the buyer is overhead, and the cooperation between the importer and the supplier is more long-term. And for smaller orders, the import business necessary to adhere to the quality of priority procurement policy, prompting buyers to develop better-quality suppliers. Because such suppliers are usually larger and more standardized, this compresses the space for buyers to eat kickbacks. In short, regardless of whether the amount of the order is high or low, starting with quality control of the product can fundamentally avoid huge losses to the importer due to the short-term behavior of the buyer (such as the madness before jumping ship).

CLI Inspection’s Comments And Summary

The above recommendations are taken at each stage and can be adjusted by the importer according to the management of his company. Doing so in advance is the only way to avoid losing a competent sourcing. But as a senior executive, you can’t put too much energy into catching rebates. The core of business operations or how to reduce costs and increase efficiency. So executives are more likely to consider how to improve the professionalism of the procurement staff and the control of product quality.

In addition, cultivate them from a humanistic perspective and combine them with the above recommendations to put the core into practice on the people-oriented “people”. Optimizing and designing procurement processes, systems and methods is the long-term solution for importers to avoid kickbacks to their buyers in China.

This article is an original article for CLI Inspection, who is committed to providing high-quality product inspection technology and know-how sharing for global importers and retailers to make imports safer.

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