Setting up purchase procedures is one thing. Ensuring your staff follows them literally is different. Complacency, ignorance, or a desire to buy new goods and services fast cause many organisations to fail procurement compliance.
Businesses risk significant data leaks when policies aren’t followed or don’t exist.
Discover how to measure and improve procurement compliance and best practices for maximising purchasing policy compliance.
Exactly what is procurement compliance?
Procurement compliance occurs when a devoted team or department heads follow purchase rules, processes, and regulations.
In practice, procurement compliance includes:
- Making and distributing purchasing policies
- Monitoring and maintaining procurement compliance
- Planning for procurement risk assessment and mitigation
- Conducting procurement audits and informing senior leadership
- Discovering ways procurement software can automate, report, and approve compliance workflows
Why does procurement compliance matter?
Compliance in procurement is not about imposing arbitrary rules and practices.
Instead, following effective procurement strategies reduces the risks of buying new goods and services.
SaaS purchasing exposes firms to software security issues like data breaches and GDPR noncompliance.
Purchasing teams follow your risk-mitigation rules when they focus on procurement compliance. Additionally, it saves money.
For software purchases, you may require a tech stack assessment. The procurement team member must check if your company already pays for a platform that meets the purpose before buying a SaaS service.
This prevents overlapping licences, when your organisation pays for equivalent software tools.
How to assess procurement policy compliance
Track and report with these five measures.
Under management spend
Spend under management is the procurement team’s share of business spending.
If your procurement department controls more corporate spending and more expenses follow internal purchasing policies, spend under management is higher.
Contract compliance
How often and fully your vendors comply with your contracts is called contract compliance.
The percentage of your contracts with fully compliant vendors is the metric.
Your contracts limit risks and safeguard your organisation from losses like supply chain shortages that could disrupt operations. Improving vendor compliance with these terms boosts procurement compliance.
Process compliance
Process compliance measures how often your organisation follows procurement procedures like supplier verification.
This statistic is crucial for all businesses, but it’s especially important for decentralised procurement models where department or branch executives make their own decisions.
In decentralised procurement, personnel are more prone to bypass tedious stages or violate restrictions (which safeguard the organisation).
Suppliers count
The number of approved vendors is your supplier count. Finding the right number is crucial.
Too many vendors may increase risk. A high supplier count may preclude smart supplier partnerships and cost savings. These attitudes favour reducing relationships.
Too few certified suppliers can leave you trapped if a provider has a shortfall or closes. Having a backup option is excellent, especially for vendors who are essential to your business.
Invoice-to-PO matching
Invoice-to-PO matching is the percentage of invoices that match your procurement system’s purchase order numbers.
This signifies the purchase order process and approval workflows were followed.
Your invoice-to-PO matching metric should be high.
Best practices for procurement compliance
Know hazards and plan mitigating
Risk management is essential to procurement compliance.
Maximise procurement efficiency while minimising risk.
Use a risk matrix to determine risk severity and likelihood.
If a risk is low-impact and low-severity, prioritise operational efficiency over risk mitigation.
However, more active risk mitigation approaches should address high-probability or severe dangers.
A consumer data breach could be severe, especially if it puts you at danger of GDPR noncompliance. In this instance, the CIO may need to thoroughly analyse and approve new vendors to mitigate risk.
Schedule procurement audits regularly.
A procurement audit reviews all documents and decisions within a specific timeframe.
Procurement leaders examine practices and rules, vendor relationships and risks, and out-of-process expenditure.
Conduct quarterly procurement audits to uncover compliance issues and take action.
An ultimate procurement audit handbook explains procurement audits.
List approved suppliers.
An approved supplier list lists companies you work with or have evaluated as safe service providers.
With this list, procurement team members can easily find vendors to buy from without a new strategic sourcing or screening procedure.
Thus, preferred supplier lists streamline procurement while adhering to policies.
Get the correct mix of centralised and decentralised procurement
Centralised procurement involves one internal team for all procurement tasks. Decentralised procurement gives department or branch leaders this power.
Centralised procurement is safer for compliance and risk. It lets firms take advantage of economies of scale and avoid software licence overlap.
However, decentralised purchasing empowers team leaders with the expertise and experience to know what they need from a purchase. It streamlines procurement with fewer bureaucratic steps.
Many companies use a hybrid strategy where a centralised buying staff handles transactions over a specific dollar threshold. Meanwhile, department chiefs control lower-risk purchases.
Use automated vendor management software.
Supplier management software helps most procurement teams manage business partnerships and compliance.
Automated approval workflows can submit purchase requests to stakeholders for approval.
This improves compliance, speeds up the purchasing process, and lets everyone see pending transactions promptly on one platform.
