Purchasing Policies in Companies: Reducing Risks by Shaping Employee Behavior
Updated: Mar 16, 2021
Purchasing policy creation, implementation and modification are an essential part of the day-to-day operations of all businesses. These policies ensure that procurement is efficient and that the following attributes are considered when purchasing goods and services:
Purchasing policies can be extensive and guide all purchases of a business so that an authority has the final say over key purchases. As a business grows, it is not uncommon for businesses to have specific employees in charge of purchases or to enable purchases up to certain dollar amounts without additional authorization.
A purchasing policy should include limits of authority requirements and/or a delegation of authority section.
Why Purchasing Policies are Important
Purchasing policies provide many benefits and can play an important role in procurement. Read on for general best practices.
Establish Purchasing Authority
Informal procurement arrangements can lead to confusion, inefficiency, and waste. Having clear policies can help ensure that right people are making purchases and that they are following the guidelines outlined in the policy.
A purchasing policy clearly establishes authority by listing the individuals who are permitted to make purchases.
Set Clear Guidelines
Purchasing policies set clear guidance, standards and procedures that must be followed by employees who have been granted the authority to make purchases per your policies. They ensure that everyone is on the same page and understands the rules for procurement.
Procurement policies benefit operations of all sizes. Your company may be small right now, but what happens when your operations grow? Without a clear purchasing policy, it may be challenging to discern what is and what is not acceptable under company standards.
Define Acceptable Practices
A clear purchasing policy will define acceptable practices and the rules that must be followed when making purchases. There are several things that need to be considered when defining acceptable practices:
What is considered unethical or a conflict of interest? For example, perhaps you want to avoid having employees show favoritism towards vendors or suppliers run by relatives.
To what extent should incentives play a role in the purchasing decision, if at all?
What procedures should decision-makers follow when making a purchasing decision?
Purchasing systems such as Coupa, allow for easy implementation of purchasing policies. When all stakeholders and employees can quickly visualize and adhere to policies, it allows for a clear, defined purchasing process.
Outline Preferred Suppliers or Criteria for Choosing Suppliers
A business’ purchasing department should set up and onboard suppliers. Policies should be in place that allow the purchasing department to:
Internal policies may include:
Selecting products from only verified and approved vendor catalogs.
Obtaining approval from IT before purchasing IT supplies.
Contacting a specific authority when purchases exceed a certain dollar amount.
Policies for specific departments may also exist. Certain IT purchases may be required to go through the head of the IT department. Office supplies may be handled by a specific manager, or there may be certain rules that need to be followed, i.e.: all purchases over X amount must be approved by X stakeholder.
Creating and implementing purchasing policies guide your employees to get what they need to complete their jobs. Businesses can setup purchasing authority levels for specific commodity groups, capital expenditures, or for larger dollar amount or volume purchases.
Contact DataMap if you need help communicating, establishing, implementing and/or updating your purchasing policies.