Advantages and Disadvantages of Policy What makes and effective Policy? Purchasing policies - Providing Guidance and Direction Purchasing procedures Reference:

1. Purchasing
Policy and
Procedures
Kit Laserna

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.
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3. 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
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4. Pros and Cons
Advantages Disadvantages
1. Provides an opportunity to define 1. Difficult to communicate
and clarify objectives throughout large organizations
2. Mean to communicate leadership 2. Might be viewed as substitute for
and views effective management
3. Provides framework for consistent 3. Can restrict innovation and
decision making and action. flexibility
4. Defines the rules and procedures
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5. 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 purpose
3. Concise - short and clear
4. Unambiguous - expressed in a way which
makes it completely clear what is
meant
5. Timely and Current
• Guides problem solving and behavior
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6. Purchasing Policies
• To provide guidance and support to the
professional purchasing and support staff.
• General outlines clarifying purchasing
management on a subject.
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7. Purchasing Policies
• The role of purchasing
• The conduct of purchasing personnel
• Social and minority business objectives
• Buyer-seller relationships
• Operational Issues
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8. PURCHASING POLICY CATEGORIES
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9. 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
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10. 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
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11. 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
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12. 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.
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13. Corporate Purchasing Office
Responsibilities
• Evaluating the effectiveness of purchasing
operations
• Providing expert support to purchasing
department
• Performing other tasks detailing corporate
purchasing office responsibilities
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14. Policies Defining the Conduct of
Purchasing Personnel
• Outline management’s commitment to
ethical behavior
• Guidance on ethical and questionable
business practices
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15. 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)
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16. 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.
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17. 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.
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18. 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.
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19. 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.
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20. Policies Defining Social and Minority
Business Objectives
• Includes supporting and developing local sources of
supply.
• Awarding business to qualified minority suppliers
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21. 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.
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22. 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.
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23. • 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.
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24. 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
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25. 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.
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26. 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.
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27. - Developing open communication channels.
- Informing suppliers as to why they did not
receive a purchase contract.
- Establishing a fair process to award purchase
contracts
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28. 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)
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29. **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.
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30. 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.
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31. 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.
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32. REQUIREMENTS FOR DISPOSAL
• Evidence of adequate liability insurance on the
part of the contractor.
• Evidence that the waste transporter uses
properly certified disposal sites.
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33. 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.
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34. PURCHASING PROCEDURES
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35. Procedures
• Operating instructions detailing functional
duties or tasks
• “how-to”
• Should be concise, accurate and complete
set of operating instructions
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36. Procedure Manual
• Reference guide for purchasing personnel
• Provides consistency and order
• Usually more detailed and extensive than
policy manual
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