To thrive in any economy, strong vendor relationships are paramount to success. That’s why understanding and implementing effective procurement policies and procedures is nothing short of essential.
In this comprehensive guide, we share the core principles and best practices for procurement policies and procedures that will empower you to confidently design, document, and implement them within your organization.
Whether you’re just starting your journey to implement procurement best practices, or looking for new ideas to improve procurement policies and procedures that you already have, this guide is for you.
What are procurement policies?
Procurement policy templates guide your organization’s procurement strategy, fostering responsible and efficient procurement procedures. They define the overarching standards and guidelines of ‘‘what’ is expected of employees to conduct an efficient, ethical, and compliant procurement procedure framework.
Procurement policies should provide guidelines for the entire lifecycle of activities employees will undertake when they acquire goods and services, including:
- Planning and sourcing
- Solicitation management, including competitive and noncompetitive bidding
- Vendor evaluation and selection
- Risk assessments and due diligence
- Purchasing, including purchasing authority and approval
- Delivery & acceptance of goods and services
- Invoice approval & payment
Here’s an example of an effective procedure: a simple procurement policy for competitive bidding.
Illustrative Policy for Competitive Bidding:
“Any procurement over $25,000 must be competitively bid through either a price quote or a request for proposal. At least three prospective vendors must be solicited, and at least two quotes/proposals received.”
As a best practice, procurement policies should also reflect and align with your organization’s broader strategic objectives, corporate goals, and values, including sustainability, diversity and inclusion, and data protection. While these broader corporate objectives (and related policies) are oftentimes defined elsewhere, applicable components must be considered and aligned into your procurement policies.
For example, your organization’s procurement information security policy will define standards and guidelines for protecting information. Your procurement policy should align with those guidelines to ensure information shared with vendors and other third parties is protected, and procurement activities are compliant. However, policies should not be prescriptive about how to do things. That’s where your procedures come into play.
What are procurement procedures?
Key elements of effective procurement procedures are the practical, step-by-step procedure processes employees must follow to execute the principles outlined in your documentation of procurement policies. They define ‘how’ things get done, including specific actions and workflows necessary to carry out procurement activities efficiently and consistently.
In this example, an employee procures consulting services over $25,000 (the threshold that requires competitive bidding).
Example Procedure for Competitive Bidding
- Define requirements for the goods or services and develop a cost estimate
- Obtain approval to go to market and solicit quotes
- Research the market to identify at least three prospective vendors to participate in the competitive solicitation
- Solicit quotes from prospective vendors
- Receive and evaluate quotes, ensuring that at least two quotes are received
- Conduct interviews/demos, as appropriate, to identify the finalist
- Perform a pre-contract risk assessment and due diligence on the finalist
- Negotiate and award the contract
Seven big benefits of having written procurement policies & procedures.
As you can see, developing procurement policies sets the overall direction and principles for procurement, while procedures provide detailed instructions for executing specific tasks or processes in alignment with those policies. Together, they bring several significant benefits to your organization:
Consistency and Standardization
Documenting guidelines for policies and procedures establishes consistent and standardized processes for procurement across the organization. This consistency helps eliminate confusion and ensures that everyone involved in procurement understands their roles and responsibilities. Optimization of procurement procedures also enables better control over the quality, quantity, and pricing of goods and services purchased, leading to cost savings and improved efficiency.
Risk Mitigation and Management
Effective procurement policies and procedures include risk management protocols to identify, assess, and mitigate potential risks associated with purchasing activities. This proactive approach helps minimize the likelihood of issues such as supplier disruptions, contract disputes, or fraud. Having clear risk management guidelines will better protect your organization’s interests and assets.
Documented budgetary limits, competitive bidding requirements, and cost-saving measures all help your organization control costs and ensure purchases are made in a cost-effective manner. Clear procurement procedures help prevent unauthorized or unnecessary spending by defining approval processes and purchase authorization levels.
Legal and Regulatory Compliance
Compliance with local, national, and international laws and regulations is critical for your organization. Compliance with procurement policies and procedures helps ensure purchasing activities follow requirements such as anti-corruption laws, environmental regulations, and data protection laws. Non-compliance can lead to legal penalties, fines, and damage to your organization’s reputation.
Transparency and Accountability
Documented procurement procedures create transparency in the procurement process, ensuring employees, boards, regulators, auditors, and funders understand procurement policy management and how decisions are made.
Audit and Reporting
Accountability is enhanced when documentation is in place, as tracing and auditing procurement transactions becomes easier. Auditors can review activities against established guidelines to assess compliance and identify any irregularities. Your organization can also generate accurate reports reviewing procurement activities, helping management make informed decisions.
Case Study: Atlantic Council
A step-by-step guide to developing your procurement policies & procedures.
As you can see, the benefits of procurement policies are of tremendous value to your organization. However, crafting them can be daunting, especially starting from scratch.
This step-by-step procurement policy guide will walk you through the process of planning and developing your procurement policies and procedures. It provides a roadmap you can follow to create a robust (yet right-sized) set of strategies for policies and procedures that will enhance transparency, efficiency, and compliance in your procurement operations.
Step 1: Establish a Baseline for Your Organization’s Needs
Before diving into creating or revising procurement policies and procedures, it’s crucial to understand your organization’s specific needs and constraints. Start by conducting a thorough assessment.
- Define your operating model: Will your organization employ a centralized, decentralized, or hybrid procurement operating model? Your operating model will inform where activities should be performed and who should perform them.
- Determine the procurement volume: Evaluate the scale of your organization’s purchasing activities. Consider the number of transactions, the value of purchases, and the frequency of procurement.
- Identify the types of goods and services you buy: Categorize the products and services your organization procures. Different categories may require different procurement approaches.
- Analyze regulatory requirements: Understand the legal and regulatory framework that governs your industry and geographic location.
- Assess internal resources: Evaluate the human and financial resources available for procurement. Consider the size and expertise of your procurement team.
Step 2: Define Clear Objectives
Once you have a solid baseline of your needs and constraints, define guidelines for your procurement policies with clear goals and objectives for what you want to achieve. Common procurement objectives include:
- Cost savings: Procure goods and services at the best possible price without compromising quality.
- Supplier diversity: Promote inclusivity by engaging with various suppliers.
- Risk management: Minimize vendor-related risks stemming from operational disruptions, data breaches, or compliance issues, for example.
- Efficiency and transparency: Streamline the procurement process and ensure transparency in decision-making.
- Sustainability: Incorporate environmentally friendly and socially responsible practices into procurement.
Clearly defined objectives serve as a guideline for a procurement policy framework for developing procurement policies and procedures that meet your organization’s unique needs.
Step 3: Create an Implementation Team and Begin Getting Buy-In
Form a dedicated team responsible for overseeing the development and deployment of the new (or improved) policies & procedures. This team should include procurement, risk, legal, IT, information security, compliance, and change management experts. Assign clear roles and responsibilities to team members, including identifying a team lead.
An important role for this team will be facilitating change management, starting with obtaining buy-in from key executives, department heads, and staff. The team should communicate the advantages of compliant policies and procedures, how they will benefit the organization as a whole, address any concerns, and encourage feedback to ensure everyone is on board.
Step 4: Define Your Procurement Policies and Standards
Now that the planning is done, you can begin developing your procurement policies. You always want to start with policies first as they define the overarching standards and guidelines of ‘‘what’ is expected of employees.
A few of the important components of policies and procedures that you’ll need to define include:
- Applicability: Identify specific types of vendors that are out-of-scope and/or excluded from the policy, if any.
- Purchasing authority: Define who can initiate, approve, and execute procurement and purchasing activities.
- Sourcing: Specify the different sourcing methods employees should use and when they are required. Examples include competitive solicitations like RFQs and RFPs and non-competitive solicitations like sole sourcing and emergency purchases.
- Risk management: Address how your organization will identify, assess, and mitigate procurement-related risks before onboarding a new vendor.
- Related policies: Cross reference to policies that must be complied with in the procurement process. Examples include standards of conduct, conflicts of interest, handling of confidential information, and document retention and storage.
- Policy governance: Identify the governing body that provides independent oversight of the policies (generally a board or board-designated committee) and the executive who is ultimately accountable for policy compliance.
Sample Competitive Solicitations Policy Document
Step 5: Document Your Procurement Processes, Roles, and Responsibilities.
Once your policies are defined, it’s time to create detailed procedures that provide step-by-step guidance for procurement activities. The level of detail in your procedures should align with your organization’s size and complexity.
Key activities you should document in the procurement procedures include
- Procurement planning: Describe how procurement needs are identified, budgets are set, and procurement plans are developed.
- Bidding and negotiation: Provide guidance on the procurement methods (e.g., small purchases, competitive quotes and proposals, sole sourcing, etc.) your organization will use.
- Supplier selection: Outline the process for identifying potential suppliers, conducting evaluations, and making selection decisions.
- Purchase requisition and approval: Specify how purchase requests are initiated, approved, and processed.
- Risk assessments: Define processes for assessing and mitigating risks before signing a contract.
- Contract management: Detail how contracts are executed, monitored, renewed, or terminated.
- Record-keeping and documentation: Explain the documentation requirements for each procurement transaction, including purchase orders, contracts, and receipts.
It’s important to note that some of these activities may be defined in separate policies. For example, some organizations maintain stand-alone contracts or third-party risk management policies. In these cases, you want to ensure your procedures specify the ‘handoff’ between the procurement-related processes.
Also, be specific about defining roles and responsibilities in the procurement procedures.
Many organizations write their policies in the third person, making it difficult to understand who is ultimately responsible. Here’s an example:
“Prior to initiating a Request for Quote, business requirements for the goods or services must be defined and documented.”
Here is a better version that clearly defines who’s responsible.
“Before initiating a Request for Quote, the business owner is responsible for defining and documenting the business requirements for the goods or services.”
This second version clarifies that the business owner is responsible for this process, which helps avoid confusion or misinterpretation.
Step 6: Create Supporting Tools and Templates
An important component of your procurement procedure framework will be the forms, templates, checklists, and other tools you will need to support the efficient, compliant implementation of these procedures. Create these last after your procedures have been defined.
Some of the common tools and templates you’ll want to create include RFx templates (RFQ, RFP, RFI), a proposal evaluation checklist, purchase requisition templates, and purchase order templates.
Step 7: Review and Right-Size to Your Goals and Resource Capabilities
Lastly, after you have developed and documented your policies and procedures, it’s important to step back and ask yourself, ‘Can we really do all of this?’
Key questions you’ll want to ask when reviewing your draft policies and procedures include:
- Resources: Do we have enough resources to handle the workload?
- Skills: Do we have the necessary knowledge (or can we add it to our team)?
- Technology: Do we have the right technology to enable efficient workflow? If not, do we have the budget and appetite to purchase it?
- Governance: Do we have the ability to oversee the breadth of procurement policies, procedures, and activities to ensure they are executed consistently and compliantly?
Don’t try to boil the ocean, especially if you’re establishing procurement policies and procedures for the first time. Instead, focus on doing what’s most important and executing with consistency and quality.
One way to stress test things before full-scale implementation is to conduct pilot tests. These help you identify and address any potential issues or challenges, gather feedback, and make necessary adjustments.
Write your policies & procedures for clarity and effectiveness.
The challenge of creating procedure implementation policies is a heavy lift and requires a blend of art and science. You want to cover everything necessary, but you also want them to be user-friendly for your employees.
We’ve learned several procurement policy and procedure insights over the years, having written hundreds of policies and procedures for our clients:
Strategies to drive rollout and adoption:
Developing procurement policies and procedures is just the first step. Procurement policy benefits for organizations come from effectively rolling them out and ensuring organizational adoption.
Here are six essential tips to drive the successful rollout and enthusiastic adoption of policies and procedures.
Tip 1: Communicate the Change
Providing clear and consistent communication before and during the procurement policy rollout process is essential. Develop a communication strategy that includes regular updates and opportunities for employees to ask questions and provide feedback. Use the best channels within your organization, such as emails, meetings, and intranet announcements, to reach all stakeholders.
Tip 2: Train on New Processes, Roles, and Responsibilities
Ensure that employees understand the new policies and procedures by providing concise procurement policy training during the implementation. Tailor training to different employee groups based on their roles and responsibilities within the procurement process.
Tip 3: Provide Resources to Support Performance
Arm employees with resources they can access to help answer questions ‘in the moment’ as they begin implementing the new policies and procedures. Some of the performance support tools that work best with our clients include:
- Decision trees
- Frequently asked questions
- How to guides
- Microlearning videos
- Dedicated procurement ‘hub’ (intranet site)
- Lunch and learns
Tip 4: Monitor, Adapt, and Evolve
Establish key performance indicators (KPIs) to track the progress and impact of the new policies and procedures. Regularly evaluate how well they are being followed and their impact on procurement activities. Review and refine procurement policy trends regularly to adapt to changing business needs, industry standards, and regulatory requirements. We recommend no less than annual comprehensive reviews.
Tip 6: Celebrate Success and Recognize Achievements
Finally, acknowledge and celebrate procurement policy success stories. Share wins across the organization, especially those aligned with the goals you identified initially. Advantages of streamlined procedures include improved efficiencies, compliance, and cost savings, which can go a long way to show the initiative’s value.
Sound procurement policies and procedures are critical to good governance, risk management, and operational efficiency. Documentation of procurement procedures with a comprehensive procurement guide for employees allows your organization to navigate complex legal and regulatory landscapes, maintain consistency and accountability, control costs, and foster productive, low-risk relationships with all of your vendors.
Procurement policies and procedures also require regular care and feeding to ensure they remain effective and compliant in an ever-changing business environment. Be sure to invest the time and effort to continually review and refresh them, and your organization will reap the benefits of efficient, cost-effective, and transparent procurement processes.
Want to learn more from Tom Rogers on this topic? We encourage you to read Procurement Risks (and How to Manage Them and How Procurement Team Can Help Their Organization Get the Best Deal.
Vendor Centric’s team of professionals has in-depth experience assisting organizations of all sizes in developing their procurement policies and procedures process and getting it right. Contact Us to schedule a free, no-hassle consultation to explore your needs and how we can help.