Purchasing policy and procedures

Purchasing Policy and Procedures

Kit Laserna

Purchasing Policy and Procedures 2

Policy Overview

• The term policy includes all the directives (explicit and implied) that designate the aims and ends of an organization and the appropriate means used in their accomplishment.


Policy Overview

• Policy refers to the set of purpose, principles and rules of actions* that guide and organization

• Usually documented in writing

*rules of actions – Standard Operating Procedures along with rules and regulations


Pros and ConsAdvantages Disadvantages

1. Provides an opportunity to define and clarify objectives

1. Difficult to communicate throughout large organizations

2. Mean to communicate leadership and views

2. Might be viewed as substitute for effective management

3. Provides framework for consistent decision making and action.

3. Can restrict innovation and flexibility

4. Defines the rules and procedures


What makes an Effective Policy?1. Action Oriented Guidelines - involving

practical action to deal with a problem or situation

2. Relevant - suitable for a particular purpose3. Concise - short and clear4. Unambiguous - expressed in a way which

makes it completely clear what is meant5. Timely and Current• Guides problem solving and behavior


Purchasing Policies

• To provide guidance and support to the professional purchasing and support staff.

• General outlines clarifying purchasing management on a subject.


Purchasing Policies

• The role of purchasing• The conduct of purchasing personnel• Social and minority business objectives• Buyer-seller relationships• Operational Issues


PURCHASING POLICY CATEGORIES


The Role of Purchasing• Addresses the objectives of the purchasing

function• Defines the responsibilities of the various

buying levels• Serves as general or broad statements

which more detailed or specific policies are involved


Objectives of the Purchasing Function

To select suppliers that meet purchase and performance requirements

To purchase material and service that comply with engineering and quality standards

To promote buyer-seller relations and to encourage supplier contribution

To treat all suppliers fairly and ethically


Objectives of the Purchasing Function

• To work closely with other departments• To conduct purchasing operations so they

enhance community and employee relations• To support all corporate objectives and

policies• To maintain a qualified purchasing staff and

to develop the professional capabilities of the staff


Corporate Purchasing Office Responsibilities

Carrying out executive policies Developing and publishing functional

purchasing and material policies and procedures to support efficient and effective purchasing operations at all levels

Coordinating strategy development between purchasing departments or centers to maximize purchasing leverage of critical commodities.


Corporate Purchasing Office Responsibilities

• Evaluating the effectiveness of purchasing operations

• Providing expert support to purchasing department

• Performing other tasks detailing corporate purchasing office responsibilities


Policies Defining the Conduct of Purchasing Personnel

• Outline management’s commitment to ethical behavior

• Guidance on ethical and questionable business practices


Ethics Policy

A document that defines the essentials of how people within an organization will interact with one another, as well as how they will interact with any customers or clients they serve.

• (http://www.wisegeek.com/what-is-an-ethics-policy.htm)

http://www.wisegeek.com/what-is-an-ethics-policy.htm

http://www.wisegeek.com/what-is-an-ethics-policy.htm


Reciprocity Policy

A formal policy often exists detailing management’s to reciprocal purchase agreements

• Usually describes management’s opposition to the practice and lists the type of behavior to avoid.


Behaviors to avoid:

• A buyer gives preference to suppliers who purchase from the buyer’s organization

• A buyer expects suppliers to purchase the buying company’s products as a condition for securing a purchase contract

• A buyer looks favorably on competitive bids from suppliers who purchase the buyer’s products.


Contacts and Visits to Suppliers

• Controlling unauthorized or excessive contacts or visits

• Unauthorized suppliers visit or contacts by non-purchasing personnel undermine purchasing’s legitimate authority as the principal commercial contact with suppliers.


Former Employees Representing Suppliers• Unfair advantage over other suppliers

– To address this issue is to establish a policy prohibiting business transactions with suppliers who employ former employees known to have inside or confidential information

– Prohibiting employee to competitor for a specified time.


Policies Defining Social and Minority Business Objectives

• Includes supporting and developing local sources of

supply.

• Awarding business to qualified minority suppliers


Supporting Minority Business Suppliers• not only the right thing to do; it is also the

smart thing to do.• One of their objectives is to hire and train

people with multicultural backgrounds.• Promote relationships with suppliers and

customers from diverse backgrounds.


Steps to Achieve Policy Objectives

Setting forth management's commitment on this subject.

• Evaluating the performance potential of small or disadvantaged suppliers to identify those qualifying for suppliers assistance.

• Inviting Small and disadvantaged suppliers to bid on purchase contracts.


• Establishing a minimum percentage of business to award to qualified small and disadvantaged suppliers.

• Outlining a training program to educate buyers regarding the needs of small and disadvantaged suppliers.


Environmental Issues

• The use of recycled materials• Strict compliance with local, state and

federal regulations• Proper disposal of waste material, most

especially hazardous waste.• Understanding and assessing the

environmental risk associated with the particular chemical being produced


Policies Defining Buyer-Seller Relationships.

Supplier relations- The principles that guide relations with suppliers are often contained in a policy stating that buyer-seller relationships are essential for economic success.


Principles that support positive relationships.- Treating suppliers fairly and with integrity.- Supporting and developing those suppliers who

work to improve quality, delivery, cost, or other performance criteria.

- Providing prompt payment to suppliers.- Encouraging suppliers to submit innovative

ideas with joint sharing of benefits.


- Developing open communication channels.- Informing suppliers as to why they did not

receive a purchase contract.- Establishing a fair process to award purchase

contracts


Policies Defining Operational Issues

• Hazardous materials– Purchasers must take an active role controlling

hazardous waste.– requirement for an organization to

be International Organization for Standardization/ISO 14000 certified to engage in global business transactions.

– Establishing an Environmental Management System (EMS)


**ISO 14000- standards exist to help organizations

minimize how their operations processes etc. that negatively affect the environment (i.e. cause adverse changes to air, water, or land) and comply with applicable laws, regulations, and other environmentally oriented requirements.


EMS Requirements• Create an environmental policy• Set appropriate objectives and targets• Help design and implement a program aimed at

achieving these objectives• Monitor and measure the effectiveness of these

programs• Monitor and measure the effectiveness of general

environmental management activities within the firm.


REQUIREMENTS FOR DISPOSAL • Evidence of valid permits and licenses• Specification of the types of disposal services the

contractor is licensed to provide• Evidence of safeguards to prevent accidents along

with contingency plans and preparations if hazardous spill occurs

• Detail of the specific process used to control hazardous material once it exits a buyer's facilities.


REQUIREMENTS FOR DISPOSAL

• Evidence of adequate liability insurance on the part of the contractor.

• Evidence that the waste transporter uses properly certified disposal sites.


Supplier Responsibility for Defective Material

This policy outlines a supplier responsibility for defective material shipments or other types of non-performance. A single defective shipment in a just-in-time production environment can shut down an entire production process.


PURCHASING PROCEDURES


Procedures

• Operating instructions detailing functional duties or tasks

• “how-to”• Should be concise, accurate and complete

set of operating instructions


Procedure Manual

• Reference guide for purchasing personnel• Provides consistency and order• Usually more detailed and extensive than

policy manual

Technology

Purchasing policy and procedures