Tom is a trusted advisor on procurement and third-party management to organizations across the United States. Having worked with over 120 organizations over his 30-year career, he has a unique ability to bring creativity and discipline to finding solutions for even the most complex challenges his clients face.
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.
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:
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.
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
Given the complexity of Virgin Galactic’s supply chain operation, and competing demands on our own time, we needed a partner to help us establish scalable policies, procedures, and infrastructure to support our rapidly expanding supplier management operations. We were fortunate to find Vendor Centric. In addition to guiding us through the strategic thinking, they rolled-up their sleeves to help us create documentation and operationalize all of our supplier activities.
Lisa Morris Vice President, Supply Chain, Virgin GalacticAs 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.
Cost Control
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.
Learn how Vendor Centric helped Atlantic Council refresh and modernize their existing procurement program to meet the needs of a growing organization.
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.
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:
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:
