Key Considerations and Steps for Creating a Successful Procurement Policy

Whether you're directly involved in procurement or you're managing purchasing decisions within your role, you’re tasked with:

1. Balancing innovation with fiscal responsibility

2. Ensuring compliance across the organization

3. Driving value through every purchase

It’s a tall order for anyone. But the good news? You can do it all with a well-crafted, comprehensive procurement policy.

In this guide, we'll walk you through setting up a procurement policy and process that addresses current challenges and positions your function into a competitive advantage.

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What is a procurement policy? 

Procurement policies are strategic documents that outline an organization's rules, guidelines, and procedures for purchasing goods and services. Effective policies address four key areas:

1. Competition: Identifying, evaluating, and selecting potential suppliers

2. Negotiating terms: Defining parties' rights and obligations during transactions

3. Documentation: Verifying fair prices

4. Internal controls: Increasing equal opportunity for suppliers and reducing wasteful, fraudulent, or abusive purchases

Having an upfront policy ensures everything runs smoothly down the road. A well-established framework drives consistency, making it easier to manage procurement processes and adhere to guidelines.

Why you need a strong procurement policy (and how things go wrong without one)

Without proper guidelines and processes, companies face challenges impacting their bottom line, operational efficiency, and overall business health. 

As procurement evolves from a purely negotiation and finance-focused function, you can evolve your strategy as a strategic enabler of corporate growth. This means a well-crafted policy becomes even more crucial to:

Avoid maverick spending

Maverick spending refers to purchases made outside an organization's established procurement policies, bypassing approved suppliers or channels. This leads to:

• Waste of as much as 80% of your SaaS budget due to redundant subscriptions and unused licenses
• Increased effort by accounting teams to reconcile discrepancies from rogue purchases 
• Security vulnerabilities from unvetted software, potentially incurring data breach costs exceeding $4.45 million
• Hindered productivity from data silos and incompatible workflows

Procurement and finance teams need comprehensive usage information to prevent the negative effect of maverick spending on your bottom line, supplier relationships, and profits. 

Prevent procurement fraud

Procurement fraud occurs when internal or external stakeholder(s) collude to manipulate purchase orders, which costs organizations approximately 5% of their annual revenue. A robust policy addresses the three elements of the Fraud Triangle:

• Opportunity: According to the Occupational Fraud 2022 Report nearly 29% of fraudulent cases occurred due to a lack of control. Procurement policies establish clear operational controls and thresholds to pre-empt these situations.

• Incentives/Pressure: Procurement policies are essential for implementing checks and balances to reduce temptation arising from personal circumstances.

• Rationalization: Robust policies communicate ethical standards and consequences making it harder for individuals to justify fraudulent actions.

By defining strict approval processes, segregating duties, and mandating regular audits, a comprehensive policy significantly reduces fraud opportunities.

Maximize ROI on spend

Most organizations often focus solely on upfront costs, overlooking the Total Cost of Ownership (TCO), which can include implementation, operational, and integration costs – significantly impacting long-term value. 

A comprehensive procurement process helps in accurately assessing ROI beyond immediate financial returns. It provides a framework for evaluating efficiency gains, customer satisfaction improvements, and long-term cost savings. 

5 key components of a procurement policy

To optimize the software purchasing process, understanding these components is crucial:

• Purpose and scope: The policy’s scope and purpose helps you outline departments, types of purchases, spending thresholds, and procurement methods. For instance, specifying all SaaS purchases over $2,000 must go through competitive bidding procurement. 

• Objectives: Organizations should delineate organizational objectives including value for money, maintaining compliance, and promoting fair competition.
  
  
• Detailed process overview: Include a breakdown of your workflow like submitting purchase requests, approval process and hierarchy, RFP, supplier selection, and payment procedures. Be sure to highlight any automated steps in your workflow, such as using procurement software like Vendr to streamline approvals or manage supplier relationships.

• Roles and responsibilities: Define roles for purchase requests, approvals, negotiations, contract management, and oversight by finance and legal teams.

• Risk management: Address risk through supplier vetting, conflict of interest policies, ethics standards, data security, and regular audits.

Apart from the general procurement process, Sara Schwake, Senior Procurement Specialist at Vendr suggests keeping these things in mind when crafting a procurement policy: 

• Early procurement involvement: Engage the procurement team at least 120 days before any renewal or new purchase to allow time for negotiation or sourcing alternatives.

• Delegation of authority: Clearly define spending limits and approval levels for different roles within the organization.

• Guiding principles: Leverage granular usage data and knowledge to keep, cut, or replace the tool. Foster long-term, mutually beneficial supplier relationships for process improvement and cost savings. Always prioritize ROI over cost.
  
  
• Business rules: Conduct regular market analysis for data-driven decision-making. Implement a systematic approach to evaluate and manage supplier performance, while ensuring legal compliance.

Vendr guide to creating a successful procurement policy

Here's Vendr's step-by-step guide to help you develop a policy that drives efficiency and value:

Align your procurement objectives with broader business goals

Start by understanding your organization's strategic objectives. Your procurement policy should support these goals, whether it's cost reduction, innovation, or sustainability. This ensures that procurement becomes a strategic function rather than just a transactional one.

Audit your current procurement process and identify weaknesses

Conduct a thorough review of your existing procurement practices. Identify pain points, inefficiencies, and areas of non-compliance. This audit will help you focus on the most critical areas for improvement in your new policy.

Work cross-departmentally and with stakeholders to design a process 

Collaborate with stakeholders from various departments to design a comprehensive process. This ensures the policy addresses all sides of your business. Vendr's procurement approach includes:

• Centralizing intakes for purchase requests
• Implementing approval workflows for transparency and time-saving
• Establishing renewal management processes to eliminate wasted spend
• Creating a single source of truth for supplier relationships, spend, and contracts

Check out Vendr's free procurement tools, including free procurement automation and integrated approval workflows, so you can approve business spend from one place. 

Assign responsibilities to specific roles and provide training

Create a RACI (Responsible, Accountable, Consulted, Informed) matrix for your procurement process where individuals or departments are categorized as follows:

• Responsible: Assign task executors for each procurement stage 
• Accountable: Designate final decision-makers for key processes 
• Consulted: Identify subject matter experts to provide input
• Informed: List stakeholders who need to be updated 

If required, conduct learning and training sessions to reflect organizational changes and process improvements, so your procurement policy remains agile and effective.

Choose metrics to track procurement performance over time 

Sara Schwake from Vendr recommends, “Selecting key performance indicators (KPIs) to measure the effectiveness of your procurement policy. The importance of tracking cycle time to identify inefficiencies cannot be denied.” 

This can help you make informed policy decisions that lead to significant cost savings and reduced amendments. Vendr's platform lets you track your procurement cycle and focus on specific steps of your workflow, creating opportunities for continuous process optimization.

See how Mixpanel was able to shorten processes by 75% and improve productivity by partnering with Vendr. 

How to keep procurement and purchasing aligned with your policy with Vendr

Developing a strong procurement policy is just the first step. The bigger challenge is making sure everyone follows the process consistently in all procurement activities. This is where Vendr shines. 

Brooke Beeson, IT Project and supplier Manager, Gainsight says, “The ability to cross-reference with visibility on renewals means fewer things slip through the cracks. Vendr provides us with that efficiency and support.”

Whether you’re a small business in expansion mode or a large company looking to spruce up procurement procedures, you’re in the right place. Here’s how Vendr helps: 

Standardize intakes

Vendr's customizable intake templates capture all necessary details for each purchase request. This ensures decision-makers have the full picture, including current and future projections, to make informed choices aligned with your policy.

Automate approval workflows

Vendr's no-code interface lets you create approval workflows that match your policy requirements. Whether it's through Slack, email, or in-app comments, all stakeholders stay in the loop, speeding up time-to-market without sacrificing compliance.

Create a single centralized source of truth for supplier management

For small purchases or large, keep RFI, RFQ, supplier agreements, and records in sync through upload, storage, and search. Additionally, easily compare spend data from your financial systems against contract commitments. 

The right SaaS management solution lets you achieve strategic business goals like data-driven purchasing decisions, ROI maximization, and industry compliance. Vendr is your go-to choice if you want to skip the negotiation and save thousands.

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