As a company or organization grows, the need to establish procurement guidelines becomes more important. Procurement or purchasing is the management of all spending on services and goods. As an aspect of overall business management, it is a central function that relates directly to cost containment, reducing expenses, and increasing profits. Although most people associate procurement with large companies and multimillion dollar deals, procurement guidelines can help every firm, large and small.
The field of procurement is so broad that it is best to divide it into distinct business processes. The main categories are: vendor management, contracted goods and services, payment terms, thresholds, and segregation of duties. In addition to identifying the different business process, there are three items that need to be completed to develop procurement guidelines: establish organizational structure and roles, implement accounting controls, and define accountability and responsibility for procurement processes within the organization.
The standard methodology used to develop procurement guidelines is to create a file folder for the guidelines. Within this file folder, create a separate one for each of the major business processes. As the guidelines are developed, create the process guides for the different roles and departments involved in the process. Include a section on oversight and management reports, as well as a flow document for senior management review. All guidelines should be reviewed and discussed with the impacted areas, and presented to senior management for review. Upon acceptance, training for all users is required to implement the guidelines.
The first item to review is the roles and responsibilities of the different players in the procurement process. Identify the who, what, where and why for each transaction, and determine the initiation point or activity. For example, when a department requires office supplies, who is responsible for this process? How do they decide which vendor to contact? What is the maximum amount they can spend and who is approving this purchase? These questions are all central to developing procurement guidelines.
Accounting provides a standard structure for tracking and managing spending. The use of purchase requisitions, purchase orders, quotations, contracts, and other procurement tools all impact on accounting functions. Typical accounting controls focus on reducing the fraud risk, obtaining best value for dollar, receiving negotiated pricing and terms, and approval authorizations. These items can be managed in a computerized system, but they first need to be defined in the business process guidelines.
Accountability and responsibility is a major driver in procurement. Most organizations focus on the dollar value of the purchase order or contract, but may overlook the total spent on a particular commodity. Determining the appropriate position to be responsible for negotiating with the supplier and processing the purchase orders is an important step in the procurement guidelines.