In case this process is manual, you can define your purchase order generation process in this section. More automation not just leads to simplification of the process, it also reduces the transaction cost of processing a purchase order. So instead of creating a purchase order every month, a blanket order allows you to authorize an approximate amount Let say for a year and the vendor can keep on invoicing against that order till the amount is exhausted.
Download the purchasing policy template. This section outlines the process which the vendors need to follow to submit the invoices. The same is applicable to internal users too, in case they need to submit a request for payments or other invoices where a purchase order is not applicable. Whether your suppliers are sending the invoices to an email box or using an e-invoicing solution, your goal should be to avoid paper invoices, so that you are spending resources on scanning the invoices.
It might not be possible all the time to receive digital invoices, for example — Utilities. Some companies have a No PO, No Pay policy — that means a vendor will not be paid unless an invoice is associated with a valid purchase order number.
It is certainly a best practice and we encourage you to adopt these best practices while setting up the purchasing policy. Make sure, you communicate the expectations to end-users. For this to work, users need to create purchase orders in advance so that vendors can invoice against them. Not all vendors would have purchase orders or your employees would need to make payments, for example — regulatory payments.
In that case, clearly identify those exceptions so that there is no ambiguity in the process. Simply put competitive bidding is the process to get bids from different suppliers so that you can pick up the best deal for your company. The best deal or best value means the product or service which meets your expectations at the lowest value possible. A dollar threshold after which every purchase must go through a competitive bid process. You have to balance the compliance requirements with user experience and the resources available.
Sometimes you have a single source vendor or sole source vendor. In that case, a competitive bid is not possible. Here is the difference between sole and single-source vendors. In a single-source scenario, there are multiple vendors available but you have decided to purchase products or services from only one vendor.
A sole source vendor is a scenario where there is only one source available for the product you are purchasing. This is often the case with your Direct material suppliers because you are purchasing a unique product and you are often working with suppliers to develop their capabilities.
This is an important topic and you should not only spend time adding this to your purchasing policy but also ensure that you are often communicating this to your stakeholders and purchasing department.
In other words, if the person making the purchasing decision is somehow going to benefit from the purchase transaction, then there is a conflict of interest. Bob is the head of engineering and he is looking for a vendor to provide machined parts as per company specifications. That is a conflict of interest. He opens up his own shop and become a supplier to the company.
Ethical purchasing on the other hand is how purchasing professionals should behave when dealing with vendors. You should explicitly define in the policy what that means and what are the consequences of a policy violation. Our recommendation is no but that is completely up to you. Supplier diversity is not a good corporate practice but it is also a way for your company to improve the community in which you live.
Here are a few things you can cover in your purchasing policy. If you do promote supplier diversity then here are few things which you should cover in the policy. This may or may not be a part of the purchasing policy document at your company because certain companies maintain a separate document retention policy that covers all documents across the board.
If you do cover this in the policy, connect with your legal and tax department and they can help you with understanding the document retention policy. Tax likes to keep to retain purchasing records for tax audits and other reference purposes. Generally, the policy is for 7 years.
Here is a good source for different categories and record retention. Though the procurement function has some common traits from company to company, it is highly dependent on the nature of the company and the type of Spend. The same is true for the purchasing policy. You might be able to adopt a standard template but then you need to consider whether those policies are applicable to you are not. That is why we are not providing you a template for a purchasing policy but an approach and the important points you should cover in the purchasing policy.
Everyone has heard this advice before but you would be surprised to see a lot of purchasing policies that are full of pages and pages of legal and procurement jargon. So the obvious question is — for whom are we writing this policy? Is this policy for the purchasing team or is this policy for the employees of the company? It is for the employees of the companies so that they understand how you conduct purchasing in this company.
So if you are thinking that your employees are going to read pages and pages of the purchasing policy document to understand how to buy something, good luck with that!
We would recommend not more than pages. That should be sufficient to communicate all you have to say about your purchasing policies. Click here to download the purchasing policy template. A good way to check the jargon density is by asking a non-finance and procurement person to proofread the policy. You can significantly increase the chance of purchasing policy adoption by providing examples for each of the scenarios.
For example, if you are talking about a sole source if there is the only vendor who can suffice your needs vendor then provide an example where that would be applicable in your company. Similarly, if you are talking about ethical purchasing and conflict of interest. Give a hypothetical example. For example, Bob is responsible for purchasing cleaning and janitorial services.
Purchasing it from a company where he is a part-owner and his wife is the CEO is a conflict of interest. Your employees need to understand the optics of the situation from other perspectives to better relate to such issues.
So you currently may have a simple purchase approval process where the approval always comes from the manager but now your new process requires approval for different stakeholders based on the total spend. You also incorporated a new approval requirement from procurement. No, if you have a manual approval process and now the users are left to interpret the approval process. In simpler words, every purchase must be a purchase order before the supplier can be paid. Your organization is used to just calling the vendors and have them send the invoice for payment.
You can make the change gradually over a period of time. For example, first, move the credit card users to purchase orders for all material items and then move to service orders in the next stage. By building catalogs and purchase order automation you can easily provide a simple click-through process for creating purchase orders.
Most of the purchasing departments have this expectation that every employee must be aware of the company purchasing policies. You have to continuously communicate the purchasing policy out to your employees and especially new employees. We suggest that you create a cheat sheet not more than one page that lists the key areas you want your employees to be aware of. At a bare minimum, you should have the following. To ensure the adoption of the policy, make frequent contact with your employee base through emails, lunch, and learn events, etc.
For new employees — talk to your HR team and see if the purchasing cheat sheet can be introduced in the employee onboarding guide or training. One more thing, seek continuous feedback on how the policy is working and incorporate that feedback. You as the policy owner would not know all the purchasing scenarios, so continuously ask for feedback and improve the purchasing policy. A purchasing policy is a great start but make sure that you have sufficient staff to support your purchasing policy.
A bid policy defines the process for evaluating suppliers. That means you at least have 3 bids from different suppliers before you can make a decision. All these are practical considerations to ensure that what you are putting out there is fully adopted by your employees.
The other approach would be to start small, for example, set up a higher amount above which the bid process needs to be followed.
We hope this exercise helps you think through different scenarios and come up with a practical policy that is easy to implement and adapt. When defining the corporate purchasing policy, also called corporate spend policy — you should focus on two things. In our experience, employees adopt the policy when they understand the intent behind it. Just asking them to do something without explaining the need for it would not lead to the desired adoption levels. If you are implementing a bid policy, most of the employees watch this as policing by corporate and unnecessary delays for them in making vendor selection decisions.
However, you should make every attempt to explain the intent behind the policy whether in writing or verbal communication. For example, the intent behind the bidding policy is to enable an objective evaluation of the suppliers to get the best deal for the business and company.
We achieve this by running a formal evaluation process. Our process is agile to adapt to your needs so that we can enable you to make faster and better vendor selection decisions. If you have a purchasing system that is required to be used for purchasing anything in the company, then you can build an approval workflow to ensure that all purchases are reviewed by purchasing to enforce compliance. The other control mechanism is No purchase, No pay policy. This will ensure that a purchase order is always created.
We assume that you have controls to review all purchase orders before it is sent to the supplier. Intent and control go hand in hand. The key to an effective purchasing policy is to clearly define the intent behind the policy and the control mechanism. Then it is easy to come to define a simple policy that is free of jargon and easy to understand for your employees.
If you are wondering how a purchasing automation system can help automate the purchasing policy implementation then click on the button below to schedule a strategy session with one of our product specialists.
Before we get started, download our purchasing policy template by clicking the link below. Then follow this guide and design a purchasing policy for your business.
Benefits of a Purchasing Policy What is the role of the purchasing policy? Acceptable behavior These are your purchasing commandments for your employees. Example 2 — Personal incentives for the buyer It is not uncommon for vendors to entertain the decision-makers during the evaluation process or after they are selected as a vendor. The question is to what extent? You should not be surprised that the vendor is selected for that product or service. Is that acceptable behavior in your company?
Role of purchasing If you do have a purchasing department then a purchasing policy helps you elevate the value of the procurement department. We wish it was that simple! Engaging with external stakeholders Purchasing policy is not just for your employees but it also provides standard guidelines for your suppliers on how to engage with your company.
If there is no purchasing policy, there are no guidelines for your suppliers. Following are some of the areas where a purchasing policy can help How to engage with your company.
If potential vendors want to reach out to talk about their capabilities, how they should engage? What is acceptable and what is not acceptable. We talked about how vendors can try to influence the decision by engaging in unacceptable behavior. Now you can control that by ensuring that your decision-makers behave in an ethical way.
The alternative would be to define this in your purchasing policy for your suppliers. Creating a Purchasing policy — Step by step process In this section, we will cover the key sections you need in a purchasing policy. The objective of the purchasing policy Keep the objective simple. You should cover the why and scope of the purchasing policy. Role of purchasing department The purchasing policy is not the only document where you should talk about the role of the procurement or purchasing department.
It varies by each company so customize this section based on your needs. Vendor setup and onboarding process The intent of this section is to communicate to the company regarding the vendor setup and onboarding process. In fact, you should understand that this document could very well save your company money in the long run.
The document should lay out the process of obtaining goods and services in the most cost-effective manner possible.
This should include information, such as volume purchasing and the creation or reordering protocols. You can also include a roster of your vendors. This information will allow your employees to place their orders and minimize the costs. Remember that this document can be beneficial for all companies, regardless of size or status.
0コメント