Writing an Empowering and Protective Procurement Policy

Introduction

Creating an empowering and protecting procurement strategy is difficult but necessary for every organisation. A good procurement policy standardises, streamlines, and secures purchasing, safeguarding the organisation from avoidable risks and costs. After creating procurement rules for RFPIO and RFP360, I understand the complexities and the need for a clear, effective policy. This blog will explain procurement policies, why they’re needed, and what they should include. With a template and sample, we’ll walk you through establishing or amending your first procurement policy.

• Basic procurement policy
• Writing a procurement policy
• Quick success hints
• Template and procurement policy sample

Basics of procurement policy

Procurement policy

A procurement policy establishes and standardises an organization’s purchasing process. A buying policy gives staff precise instructions to handle frequent procurement situations.

Why do companies make procurement policies?

Because they have few workers and rarely acquire expensive goods or services, small enterprises rarely have a procurement policy. This is especially true for service-based enterprises. These organisations have easy budget and spend tracking. Therefore, a formal procurement strategy isn’t needed because the few people with purchasing power also see the company’s demands. The tale frequently evolves as the firm expands.

Organisations need to invest more as they develop. The sales department requires software. Product development consultants are recruited. This marketing team wants to buy advertising. You suddenly have money streaming out of every department without a clue where or why. This makes determining the bottom line challenging. This is typical for fast-growing companies.

Fortunately, a procurement policy restores order. An official policy aims to promote expenditure visibility, uniformity, restrict maverick spending, and decrease risk.

What should a procurement policy cover?

Every business has different demands. Thus, no PP is universal. Sample procurement rules reveal similar themes. Most procurement plans have a few elements, however each policy should be tailored to the organisation.

Policy sections on procurement

Goal of policy

Explain why your procurement policy was formed. What are policy objectives? Our policy begins with this brief statement:

Objective: Centralise business or departmental goods or service purchases. Make the conventional RFX process more efficient and aligned with business objectives while still doing vendor due diligence.

Process overview

Briefly describe the procurement procedure. Explain the procedure in short. If possible, include a workflow diagram to show the procedure.

1. Submit a procurement request form with general need information.
2. Procurement investigates the request for details.
3. The request may need an RFX depending on its impact.
4. The vendor is chosen and executive permission is obtained.
5. Contract negotiation and execution

Purchasing thresholds

Set spend thresholds for procurement oversight. Approving every stapler purchase wastes procurement’s time. However, larger acquisitions require business risk mitigation.

Describe some frequent situations: When and how must a purchase be approved? RFXs are needed at what spend or impact? Organisations address these questions differently.

RFX procedure

This section describes your RFX procedure for qualified purchases. Requests for information, proposals, and quotes follow the same processes.

Not sure which RFX to use? See this infographic, RFX choosing guide: RFI versus RFP vs RFQ.

1. Compile RFX needs
2. Establish assessment criteria and scope
3. Make RFX queries
4. Choose suppliers and request
5. RFX review, scoring, and winner selection

If you handle your RFP process with Word and Excel, you must monitor each document independently. When using RFP management software, the entire RFX workflow is centralised.

Diversity and sustainability declaration

Organisations with sustainability and diversity aims typically outline their activities in their procurement policy. Usually, this part is a reminder. Link to sustainable sourcing and supplier diversity policies instead of details.

Ethics, anti-bribery

Ethics and anti-bribery statements sometimes lead to more extensive policies, such sustainability and diversity statements. However, it reminds us of best procedures for purchasing and contracting. This area is prevalent in big, regulated, or nonprofit organisations that make huge purchases.

Other procurement policy sections

You may additionally include the following procurement policy parts, based on your business needs:

1. Policy on supplier selection
2. Contractor criteria and review
3. Guide to signature authority
4. Important procurement terms
5. Common queries and answers

Writing a procurement policy

1. Set objectives and needs

Before establishing your procurement policy, consider its goals.

Scaling firms require a buying policy that lets them keep up while safeguarding the business. However, maverick spend may challenge established companies. Their procurement policy must be clear and simple to promote compliance.

Your aims and needs?

• Improve spending visibility
• Give guidelines for minor, low-impact purchases
• Improve process reliability
• Control erratic spending
• Speed up procurement
• Reduce third-party risk
• Collect procurement analytics data.

Remember this while writing the policy. Which aim is most important? Is every procurement stage helping you reach these goals?

2. Study and write

The first page of a procurement policy should not be blank, although it helps. Do some study, review some examples, and look at a template (see below).

Then write part by section. Remember to be concise and straightforward. Use section headings, bullet points, brief words, and little jargon.

Considerations for procurement policy writing

• Does this policy help us audit spend?
• Easy to comprehend and navigate?
• Does it maximise procurement’s purchasing value?
• Does it benefit users and procurement?
• Does it scale well for growth?
• Does it safeguard our company?
• Can we readily collect vendor and contract data?

3. Approval by stakeholders

Ask important stakeholders for comments after your first draft. Engage parties one by one. Usually, start with your boss or immediate supervisor. Proceed to operations, legal, finance, IT, or other purchasing-related departments that may provide useful information.

Writing and editing by committee is risky, so inform and involve stakeholders. Edits should be carefully considered, but suggestions are appreciated. Above all, remember your goals. Has the idea added time but little value? Always consider end-user effect against benefit.

When finished, submit your final document for executive approval. You may end up with a procurement strategy that empowers users and protects your organisation.

Quick success hints

Make it scalable.

Writing a procurement procedure and policy is time-consuming. So write it to last. How would the policy fair if your firm increases next year? Can you handle twice as many requests with the present policy? Procurement regulations need uniformity and compliance.

Create your own rules

Don’t allow other companies limit you. Change a low spend threshold before demanding an RFP if it burdens procurement and produces no savings. Painful procurement difficulties stem from several prevalent activities. Long-term, creating a policy without contemplating how it will operate in your organisation is bad. Use this chance to think differently.

Modularise it

Procurement initiatives vary, thus your policy should reflect that. Modularising your approach involves employing the correct elements for the right projects. Flexibility boosts efficiency.

Internal approvals, requirements discovery, an RFI, vendor selection, a complete RFP, a vendor risk assessment, an evaluation, negotiations, and final contracts are required for some projects. A 10-question RFP lite and risk assessment may suffice for another low-value deal. The purchase process shouldn’t be complicated by your policies.

Use an intake form

Creating a straightforward intake form simplifies procurement for stakeholders. It also simplifies determining procurement participation. Some basic fields:

• Name of requester
• Good/service request
• Purchase description
• Budget or projected spend
• The department owner

Planning for everything is impossible, so don’t.

Avoid draughting policies and scenarios for every potential event. Doing so will result in 25 pages of illegible, confusing red tape. From my experience, your team will always throw you a wild curveball. Instead, explain policy aims and intent. Thus, stakeholders know when procurement coordination is needed.

Get input and optimise

Compliance requires consistency, but don’t stick to a lousy procedure because you’ve always done it. As requests and initiatives are completed, ask stakeholders for honest feedback. Review comments once a year to determine what’s working and what’s not. Consider whether new procurement trends would benefit your firm. Improvement is always possible.

Conclusion

Creating a thorough procurement policy helps your company streamline and safeguard its purchase procedures. Setting clear goals, performing comprehensive research, and incorporating key stakeholders will help you design a policy that satisfies your present needs and is scalable for expansion. A strong procurement policy empowers users, promotes consistency, and protects the organisation from dangers. The rules and ideas in this blog will help you create a procurement policy that supports your company’s purchasing.