Chapter 3 Purchasing Policy and Procedures
3.1 Introduction
Policies provide the basis for action on the part of sourcing professionals, as well as a set of
guidelines for the appropriate way to deal with new situations.
3.2 Policy Overview
Policy: includes all the directives, both explicit and implied, that designate the aims and ends
of an organization and the appropriate means used in their accomplishment.
3.2a What Are the Advantages and Disadvantages of Policies?
Advantages of policies:
1. Create an opportunity to define and clarify an organization’s management objectives.
2. A means for executive management to communicate its leadership and views through policy
statements that provide guidance to employees at all levels.
3. Create a framework for consistent decision making and action.
4. Provide an additional advantage by defining the rules and procedures that apply to all
employees.
Disadvantages of policies:
1. A policy is often difficult to communicate throughout large organizations.
2. Employees might view policies as a substitute for effective management.
3. Policy development can also restrict innovation and flexibility.
What Makes for an Effective Policy
Effective policies are action-oriented guidelines that provide enough detail to direct behavior that
will support an organizational goal, but are not so detailed that they discourage personnel and
‘micromanage’ them.
Other characteristics of effective policies are:
- Relevancy
- Conciseness
- Unambiguous
- Timely and current
- Action-oriented
- Helpful in solving problems
3.3 Purchasing Policies – Providing Guidance and Direction
Although many purchasing policies exist, most fall into one of five categories:
1. Policies defining the role of purchasing.
2. Policies defining the conduct of purchasing personnel.
3. Policies defining social and minority business objectives.
4. Policies defining buyer-seller relationships.
5. Policies defining operational issues.
3.3a Policies Defining the Role of Purchasing
This set of policies defines purchasing’s authority.
1
, Origin and Scope of Purchasing Authority
An executive committee usually grants this authority and develops this policy. This policy may also
detail the authority of purchasing to delegate certain tasks or assignments to other departments or
functions.
An important section of this policy describes the areas where purchasing authority does or does not
exist.
Objectives of the Purchasing Function
The following describes one company’s purchasing objectives or principles:
- To select suppliers that meet purchase and performance requirements.
- To purchase materials and services that comply with engineering and quality standards.
- To promote buyer-seller relations and to encourage supplier contribution.
- To treat all suppliers fairly and ethically.
- 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 that
staff.
Corporate Purchasing Office Responsibilities
This policy may also detail the relationship of the corporate office to purchasing centers located at
the division, business unit, or plant level. This policy can provide guidance concerning the role of the
corporate purchasing staff in the following areas:
- Carry out executive policies.
- Develop and publish category-level purchasing policies and procedures to support efficient
and effective purchasing operations at all levels.
- Coordinate strategy development between purchasing departments or centers of excellence
to maximize purchasing leverage of critical commodities.
- Evaluate the effectiveness of purchasing operations through development of key
performance indicators.
- Provide expert support to purchasing departments.
- Perform other tasks to effectively coordinate purchasing roles across the organization.
3.3b Policies Defining the Conduct of Purchasing Personnel
These policies outline management’s commitment to ethical and honest behavior while guiding
personnel who are confronted with difficult situations.
Because purchasing personnel act as legal agents and representatives, they must uphold the highest
standards as defined by executive policy and the law.
Ethics Policy
Most organizations, particularly medium- and larger-sized ones, have a written policy describing
management’s commitment to ethical purchasing behavior.
Reciprocity Policy
A formal policy often exists, which details management’s opposition to reciprocal purchase
agreements.
2
3.1 Introduction
Policies provide the basis for action on the part of sourcing professionals, as well as a set of
guidelines for the appropriate way to deal with new situations.
3.2 Policy Overview
Policy: includes all the directives, both explicit and implied, that designate the aims and ends
of an organization and the appropriate means used in their accomplishment.
3.2a What Are the Advantages and Disadvantages of Policies?
Advantages of policies:
1. Create an opportunity to define and clarify an organization’s management objectives.
2. A means for executive management to communicate its leadership and views through policy
statements that provide guidance to employees at all levels.
3. Create a framework for consistent decision making and action.
4. Provide an additional advantage by defining the rules and procedures that apply to all
employees.
Disadvantages of policies:
1. A policy is often difficult to communicate throughout large organizations.
2. Employees might view policies as a substitute for effective management.
3. Policy development can also restrict innovation and flexibility.
What Makes for an Effective Policy
Effective policies are action-oriented guidelines that provide enough detail to direct behavior that
will support an organizational goal, but are not so detailed that they discourage personnel and
‘micromanage’ them.
Other characteristics of effective policies are:
- Relevancy
- Conciseness
- Unambiguous
- Timely and current
- Action-oriented
- Helpful in solving problems
3.3 Purchasing Policies – Providing Guidance and Direction
Although many purchasing policies exist, most fall into one of five categories:
1. Policies defining the role of purchasing.
2. Policies defining the conduct of purchasing personnel.
3. Policies defining social and minority business objectives.
4. Policies defining buyer-seller relationships.
5. Policies defining operational issues.
3.3a Policies Defining the Role of Purchasing
This set of policies defines purchasing’s authority.
1
, Origin and Scope of Purchasing Authority
An executive committee usually grants this authority and develops this policy. This policy may also
detail the authority of purchasing to delegate certain tasks or assignments to other departments or
functions.
An important section of this policy describes the areas where purchasing authority does or does not
exist.
Objectives of the Purchasing Function
The following describes one company’s purchasing objectives or principles:
- To select suppliers that meet purchase and performance requirements.
- To purchase materials and services that comply with engineering and quality standards.
- To promote buyer-seller relations and to encourage supplier contribution.
- To treat all suppliers fairly and ethically.
- 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 that
staff.
Corporate Purchasing Office Responsibilities
This policy may also detail the relationship of the corporate office to purchasing centers located at
the division, business unit, or plant level. This policy can provide guidance concerning the role of the
corporate purchasing staff in the following areas:
- Carry out executive policies.
- Develop and publish category-level purchasing policies and procedures to support efficient
and effective purchasing operations at all levels.
- Coordinate strategy development between purchasing departments or centers of excellence
to maximize purchasing leverage of critical commodities.
- Evaluate the effectiveness of purchasing operations through development of key
performance indicators.
- Provide expert support to purchasing departments.
- Perform other tasks to effectively coordinate purchasing roles across the organization.
3.3b Policies Defining the Conduct of Purchasing Personnel
These policies outline management’s commitment to ethical and honest behavior while guiding
personnel who are confronted with difficult situations.
Because purchasing personnel act as legal agents and representatives, they must uphold the highest
standards as defined by executive policy and the law.
Ethics Policy
Most organizations, particularly medium- and larger-sized ones, have a written policy describing
management’s commitment to ethical purchasing behavior.
Reciprocity Policy
A formal policy often exists, which details management’s opposition to reciprocal purchase
agreements.
2
