Your business’ purchasing policy helps you align how resources are used with your organization’s objectives and brings transparency to the process. Without a clear policy, businesses can easily slip into chaotic, uncontrolled spending.
If you’ve been tasked with creating or updating your purchasing policy, this guide is for you! We’ll walk you through the key steps to get started below.
Composition of a Purchasing Policy
At a high level, developing a purchasing policy means setting standards for sourcing, compliance, authorization, and more. An effective policy should contain the following components:
It’s important to set requirements for qualifying vendors. Document your approach on points such as:
Identifying and evaluating suppliers: What are your trusted sources when searching for new suppliers? What factors (examples: reputation, customer service, compliance, price) will you assess when making decisions about which suppliers to use?
Conflicts of interest: How do you ensure any conflicts of interest with new vendors are identified and properly addressed? Are staff and new vendors required to declare any conflicts of interest as part of the evaluation process?
Risk diversification: How will you ensure your business is not overly dependent on a single supplier?
Supplier diversity: Does your company promote supplier diversity (such as minority or woman-owned), and if so, what resources can facilitate this?
Best value guidelines
Determine the processes you want your staff to follow when finding the best deal on products and services:
Getting enough quotes: How many quotes are enough for a particular purchase? Do you determine the number of quotes required based on the amount or nature of the purchase? Are there cases where you will not require quotes?
Supplier competition: How do you identify which suppliers will be considered for a purchase? What is your process for collecting bids from suppliers and how will you ensure it is followed?
Decision-making: What aspects of a purchase carry the most weight besides price? How do you rank factors like speed of delivery time, payment terms, or superior materials against others when trying to determine the best overall value?
Purchase and contract authorization
Clarifying authority and approval structures is important to your policy’s success. Within your policy, define:
Approval authority: Who is authorized to approve contracts and purchases? Do you have defined approval levels and hierarchies based on the amount and nature of the transaction?
Spend limits: Are personnel limited in how much they can spend without approval from others? How do you determine limits and is there an amount under which approval is not required?
Delegation of authority: If an approver is unavailable, who else can approve a contract or purchase in their place?
Making Your Purchasing Policy a Reality
Creating or reworking a purchasing policy can be daunting, but fortunately there are many helpful resources at your disposal. We recommend taking these steps:
Drafting Your Policy
Start with a template. Your own current policy could be the template, contrasted with those found online or via colleagues. Compare templates to decide which is best for your organization. From the outset, consider the following questions:
Who needs to approve your purchasing policy?
Who is impacted by the policy?
Does your policy need to undergo a regulatory process?
Identify and involve key people in creating your policy. A simple way to start is by meeting with important players to gather their feedback and get buy-in. Note any specific needs and incorporate them into your early draft.
Draft policy and incorporate feedback from stakeholders. After you have a working draft, share it with key stakeholders and ask for their input. Set a deadline for them to provide thoughts. Once they’ve done so, update your draft and send it out again. Repeat with a few review cycles until you have gained consensus on important topics.
Consider implications of the policy. As you develop your purchasing policy, think about how it will impact different parts of the business and ensure it aligns with the organization’s primary objectives.
Polish your policy and obtain any approvals necessary. Reach out to senior leadership or any others who need to sign off on your policy, and incorporate any final feedback as needed.
Communicating the New Policy
It feels good to complete a new policy, but to ensure it is successfully adopted, you must effectively communicate it. A few ways to do it:
Work with other leaders to get the word out and be open to ongoing conversations
Summarize takeaways in an email to any who may be impacted by it
Communicate key points and invite questions in face-to-face or online meetings
Share the official policy, make it available where anyone can easily find it
Evaluating and Updating Your Policy
Your purchasing policy is a living document that will grow with your company. Periodically review your policy to see if any changes need to be made. If staff are not following certain aspects of the policy, try to understand why and work to resolve any issues.
Going Further with Your Purchasing Policy
An effective purchasing policy is critical to your company’s financial health. As you implement your policy and evaluate its success, you may want to consider how spend management tools like Spendwise can make it easier to adopt and enforce. With Spendwise, you can:
Automate repetitive tasks
Enforce approval requirements via auto-routing
Gain real-time visibility into spending activity
Connect with your online vendors
Curious to learn more? Book a free demo here and see how Spendwise can help make your purchasing policy even more effective.