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Procurement Policy & Procedures – The Ultimate Guide 2023
Key take-aways
- Procurement policies and procedures are essential for guiding and standardizing the procurement process in businesses.
- A procurement policy outlines overarching principles and standards, while procedures define the steps to implement those policies.
- Best practices for creating procurement policies and procedures include assigning an owner, clarifying roles, and providing clear instructions.
For a procurement manager, the procurement policy and procedures are two of the most important documents for the procurement process. Without those documents, your procurement process is sorely lacking in core policies and standards.
In this article, we are going to talk about procurement policies, and procedures and how important they are for establishing your procurement process.
Once you’re done reading the article, you should now have an idea of how to create your procurement procedures and policies.
What is a Procurement Policyand Why Do Procurement Businesses Need it?
By definition, a procurement policy is a set of rules that outline the overarching principles and standards used to set the direction and decisions of the procurement process.
It helps guide employee decision-making under a given set of circumstances in a framework of goals and objectives set by the management.
To make the explanation simple, procurement policy means the set of rules followed to create an effective procurement process.
These rules are created by the people who began the procurement process within the company. While these rules are open to change, there is also a chance that the rules will be changed to accommodate new and useful ideas.
You may ask, “Why do businesses need a procurement policy?” Well, usually, When small procurement businesses start out, they might not think much about having a formal procurement policy. After all, they’re usually buying simple materials or services and it’s easy to keep track of spending.
But as these businesses grow, their spending grows too. Suddenly, different departments need things like software and consultants. Money starts going out the door in all directions, and it’s hard to know where it’s all going. This is a common challenge for fast-growing procurement businesses.
This is where a procurement policy comes in. A procurement policy is like a map that helps businesses know where their money is going. Thus, keeping things consistent, stops wasteful spending, and decreases the chance of more money-related problems.
Each procurement policy has its details. The details are set by the procurement team and they will decide which rules or data under the policy works well in creating an efficient procurement process.
Each policy is usually written as a guideline to follow, but again, it is not prescriptive about how to go about performing a competitive bid. For the policy to work, this is where procurement procedures come to play.
The Procurement Procedures– How it Works?
Before we dive into how procurement procedures work, we need to first understand what it is.
Procurement procedures define the process of implementing your policies. They are the series of steps that your procurement team will follow until you’ve reached the goal. The goal is always the result that your procurement process wants to achieve. The procurement procedure is consistently repeated until everyone in the team becomes so used to it that it’s already become a routine.
The only way to create a procedure is to come up with several procurement policies first. Once you have a set of policies that you can follow, you can start the creation of procurement procedures to follow.
For example, if your company has a Competitive Bidding Policy where a buyer is expecting the procurement to exceed the price threshold for competitive bids, then the procurement procedure for such a policy may go like this:
- Create clear requirements in a work statement for the product or service that you are procuring.
- Develop and approve the Request for Proposal while following the RFP standards of getting great proposals and reducing the risk.
- Identify prospective vendors
- Respond to vendor questions
- Receive, evaluate, and score proposals
- Down-select vendors and conduct interviews and demos
- Creating scoring workbooks for proposal evaluation
- Perform pre-contract risk assessment and due diligence on the finalist supplier
- Negotiate and award the contract
Most companies have templates, forms, checklists, and other tools that can help in supporting the constant implementation of these procedures. Examples of these include an RFP template, a contract checklist, a proposal evaluation scorecard, and others.
Contentsof a Procurement Policy
A procurement policy outlines the guidelines and procedures that a business follows when acquiring goods and services. While the specific contents of a procurement policy may vary based on the organization’s size, industry, and objectives, here are some key elements commonly found in a procurement policy:
- Policy Statement and Purpose
- Authority and Responsibility
- Procurement Process Overview
- Procurement Method
- Supplier Selection Criteria
- Ethical Standards and Code of Conduct
- Budget and Spending Limits
- Supplier Diversity and Sustainability
- Documentation and Recordkeeping
- Contract Management
- Communication
- Compliance and Consequences
You must remember that a procurement policy should be tailored to your specific business needs and industry requirements. It should be written in clear and accessible language so that all employees and stakeholders can understand and follow it.
How to Write a Procurement Policy
1. Defining your goals and needs
Before you write your own procurement policy, you must first spend some time thinking about what it needs to accomplish.
For example, a business that is scaling quickly requires a procurement policy that will allow them to maintain momentum while still protecting the business.
Thus, the reasons why you have to create a procurement policy that is aligned and that clearly describes your goal. As you write your procurement policy, you must keep this in mind.
2. Research and start writing a draft
Although no two procurement policies should be identical, it will help you to research, review a few examples, and check some templates about it.
Once you are done researching, you can start writing a draft of your procurement policy. You must remember that you should try to write as concisely and clearly as possible to help the stakeholders understand it easier and better.
3. Get the approval of key stakeholders
Once you are done with your draft, it is time to solicit feedback from key stakeholders in your company. Usually, it is best to start soliciting the advice of the manager or your direct supervisor. Then, move on to finance, legal, operations, or any other departments that are involved with the acquisition of products.
Additionally, writing and editing by committee is always a risk. Thus, approach stakeholders with the intent to inform and consult. It is important to hear their suggestions. However, you must also carefully consider the edits that you will make.
Furthermore, always remember your goals when writing a procurement policy. When you have arrived at your final draft, submit it for executive approval.
Best Practicesfor Procurement Policies and Procedures
Once you have the basic idea of creating procurement policies and procedures, you also need to know about the best practices for building these important documents.
Before you start creating your procurement policies and procedures, you need to think about how each policy and procedure will be documented. You must document your policies and procedures in a way that each should reflect all the things that you want to cover. The policies and procedures must also be written in a way that your procurement team can use them while following the policies and procedures. So in a nutshell, your procurement policies and procedures must be part art and part science.
So how do you go on achieving that? Here are some of our best pointers:
- Assign an owner whose job is to maintain and continually refresh your procurement procedures, policies, and documents.
- Identify the roles and responsibilities of each member of your procurement team to avoid confusion.
- Choose people who can help in interpreting and resolving problems.
- Reference forms, templates, checklists, and other tools that the staff can use
- Create policy statements that specifically address the rule, and procedures that direct the implementation of activities.
- Develop procedures that offer employee options, when needed, as some procedures are unnecessarily restrictive and may not be of use.
- Use clear and simple instructions that your procurement team can understand.
Conclusion
To conclude, a well-crafted procurement policy serves as a guiding compass for businesses, especially as they navigate the dynamic landscape of procuring goods and services.
As businesses continue to grow and their procurement needs diversify, a strong procurement policy becomes even more essential. It provides a structured framework for procurement procedures, outlining step-by-step processes for requisition, sourcing, evaluation, selection, and contract management.
Moreover, a comprehensive procurement policy acts as a shield against potential risks and pitfalls. It addresses multiple issues such as supplier vetting, contract negotiation, and risk management, safeguarding the organization from financial and legal challenges.
With a robust procurement policy in place, businesses can confidently navigate toward efficient and effective procurement practices.
Frequentlyasked questions
What is a procurement policy?
A procurement policy is a set rule followed by the procurement team. These are rules that help in setting smoother transactions for procurement processes.
How to create a procurement policy?
To create a procurement policy, data must first be gathered. List down all rules that can help in achieving the best outcome for the procurement process.
What is a procurement policy example?
A good procurement policy example is the Competitive Bidding policy. It is a policy created to help procurement managers in setting up the procurement bid.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
