In Part One of this post, the idea was introduced that a catalyst (e.g. policy) is typically needed within an organization to ensure Procurement is used at a company-wide level. In Part Two, we explore what should be considered when building an effective policy to support Procurement.

Ineffective Procurement policies are overly complex or are simply not producing the engagement and results expected. Ineffective policies tend to be:
  • Rigid policies that don’t allow for flexibility in the process or guidelines, those that set arbitrary rules that Procurement is unable to adjust based on project scope/need, or policies that do not allow efficiency to be gained by establishing supplier relationships.
  • A policy that sets the expectations that Procurement will be focused only (or very heavily) on price or a policy that sets processes that only drive at cost reductions (while sacrificing the efficiency, value, etc. that supplier relationships can help create).
  • Simply a policy in place that no one follows and is not reinforced by management across departments or by a company mandate (another, at times, terrifying word that organizations seem to avoid).
To avoid these bad-policy characteristics, there are a few crucial ideas that need to be considered alongside your organization-specific Procurement goals when shaping the Procurement policy and governance structure:

Cultural alignment: Before diving into development of a policy for Procurement, it is crucial to consider the culture of your organization, the goals of the business, and how Procurement plays a role to enable company-wide objectives. To better align the policy to your company’s culture, think through the typical bureaucracy (or lack thereof) within your organization, how change is perceived and management, and the methods used for communication of changes and company announcements. Considering these ideas will help you to develop a structure and approach to the Procurement policy that allows you to navigate and anticipate potential roadblocks in a proactive way.

Sponsorship: Gaining buy-in from management and the executive level for the Procurement practice and policies is key to ensuring compliance and enforcement across the organization. Procurement policies typically accompanying a complete governance program that may involve mandates, supporting systems, guidelines and standard operation procedures. While there is some level of sponsorship given that the Procurement department has been established, it is vital that those same sponsors are committed and aligned to the policies of the department and enforcement across the organization.

Oversight: A governance structure supported by policy should be set up to allow Procurement to have oversight into planned projects and enable communication between Procurement and functional areas. A common method to ensure oversight from Procurement and management within functional departments is to set spend thresholds and signatory authorization levels – this idea needs to be tied to strong sponsorship at management levels so there is an expectation and understanding that sourcing projects and spend management will involve Procurement going forward.

Process: The core Procurement policy should be focused on establishing a process that allows for flexibility; requiring “x number of bids for any spend over y” does not a strong policy make. Procurement policy should be focused on a strong sourcing process with enough flexibility to allow for nuances and adjustments for different categories/products/services as well as establishing guidelines for preferred supplier relationships and agreements that can offer greater value, reduced pricing, and increased efficiency in the purchasing cycle.

Value vs. Cost: While defining the Procurement process, the policy should also address the ways in which additional value is driven from the sourcing group. By ensuring that the process supports different end-user and department needs and allows stakeholders to play an active role in the sourcing process, you can open the door for Procurement to be viewed as a strategic partner that enables the business.

Relationship-building: This can’t always be addressed through a policy per se, but Procurement can utilize a company-wide policy as a starting block to establish relationships with the departments it supports and work together to project future sourcing initiatives and discuss how Procurement can better support the departments going forward. Depending on how the Procurement function is structured, you may want to assign designated liaisons to work with specific departments, e.g. have someone who has subject matter expertise in sourcing marketing products/services attend the monthly marketing department’s meeting, or you may have Procurement management meet regularly with the heads of different departments to understand upcoming projects and needs.

Communication, communication, communication: This is one of the most important aspects of policy roll-out and reinforcement. When a Procurement policy is rolled out, it is imperative that the policy is clearly communicated at all levels across the organization. After initial roll-out, there should be an active and ongoing practice of reiterating the Procurement policies and goals across the organization. Procurement should also establish a consistent communication method for anticipating and preparing for departmental sourcing needs. Again, this is tied heavily to relationship building, but there are also systems or something as simple as a Procurement email address that can work as an intake tool for sourcing initiatives. Finally, as Procurement engages with departments and drives value, communicating success stories and outcomes are key to driving further engagement and opening the door to further the communication cycle.

As we discussed before, a Procurement department can only be effective as the level to which they are involved in projects and sourcing initiatives (and involved at a time where they can actually add value). While good communication and “selling” Procurement internally may prompt some groups to proactively engage, in order to have consistent impact, there typically needs to a policy (that is sound and molded to drive value as opposed to strict rules) to really optimize the department and their results. Don’t let the stigma associated with bad policies and mandates prevent your Procurement group from establishing good policy to be its most effective!

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Torey Guingrich

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