A procurement management plan, or a procurement policy, guides your purchasing team’s actions and decisions, while communicating intent and process to stakeholders. It’s the framework which dictates how the procurement team operates. Many organizations establish a procurement policy as a formality and then fail to follow through in their everyday actions. However, consistency and efficiency can only be achieved if the plan is adhered to on a daily basis. Failure to do so can result in detrimental consequences to the purchasing team, internal customers, suppliers, and the organization as a whole.
A procurement management plan helps solve the problem of transparency. By spelling out possible risks and the steps that should be taken to mitigate them, this policy gives procurement leaders a guideline for monitoring their team’s purchasing practices. Achieving transparency and mitigating supply risk is made even easier when the procurement policy is combined with the capabilities of an e-sourcing tool.
Failing to follow the procurement policy leads to inconsistent procurement practices. Inconsistency is an issue for a few reasons. First, it creates serious inefficiencies that cost your procurement team time and resources, while leading to higher costs for the organization. Second, inconsistency leads to a poor procurement experience for both internal and external stakeholders. If stakeholders don’t know what to expect every time they work with the purchasing group, they can become frustrated and confused. It doesn’t just affect stakeholders, either members of the purchasing team can also become confused when they see their peers handling processes differently.
When the entire procurement team doesn’t follow a documented policy and process, members of the team will find their own way to complete tasks. In addition to creating confusion, this creates what’s known as “tribal knowledge,” which is when one or two people know how to complete the process really well and others rely on them. What happens if those team members decide to move on? More often than not, the team is left with huge knowledge gaps and scramble to fix them. On the other hand, when a team is following a clear procurement policy, all members of the team have access to the same knowledge and the group is at less of a resource deficiency should someone leave the unit.
A procurement policy is clearly outlines deliverables for both the internal customer and the procurement team. It aligns expectations for both parties and streamlines the process. If the procurement team fails to follow the policy, there’s no way they can provide their internal customers with a uniform experience. When internal customers don’t know what to expect throughout the procurement process, they may decide to bypass the group entirely, leading to maverick spending. The same goes when working with external suppliers. Misalignment can pose an even larger problem by damaging your organization’s reputation with suppliers. Proper communication and alignment is core to a successful relationship between procurement and suppliers.
For procurement leaders and the organization as a whole, it’s incredibly important to understand the metrics behind procurement performance. When everyone works the same way, this is simple to measure and track but when members of the group follow different processes, it’s more difficult to measure their performance apples to apples and track how the group performs over time. Successfully measuring procurement's performance is critical to achieving continuous improvement.
A procurement policy is crucial for organizations because it creates consistency, spreads knowledge to stakeholders, sets expectations, and mitigates risk. Ultimately, procurement policies create efficiency and resource effectiveness for procurement teams if they are properly implemented and reviewed on a regular basis. You’re putting your whole procurement function at risk if your team is not adhering to its procurement policy, or worse, doesn’t even have one.
To learn more about procurement best practices, read the Strategic Sourcing Guide.