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PurchasingPolicy andProceduresKit Laserna

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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. Purchasing Policy and Procedures 2

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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 Purchasing Policy and Procedures 3

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Pros and Cons Advantages Disadvantages1. Provides an opportunity to define 1. Difficult to communicateand clarify objectives throughout large organizations2. Mean to communicate leadership 2. Might be viewed as substitute forand views effective management3. Provides framework for consistent 3. Can restrict innovation anddecision making and action. flexibility4. Defines the rules and procedures Purchasing Policy and Procedures 4

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What makes an Effective Policy?1. Action Oriented Guidelines - involving practical action to deal with a problem or situation2. 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 Policy and Procedures 5

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Purchasing Policies• To provide guidance and support to the professional purchasing and support staff.• General outlines clarifying purchasing management on a subject. Purchasing Policy and Procedures 6

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Purchasing Policies• The role of purchasing• The conduct of purchasing personnel• Social and minority business objectives• Buyer-seller relationships• Operational Issues Purchasing Policy and Procedures 7

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PURCHASING POLICY CATEGORIES Purchasing Policy and Procedures 8

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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 Purchasing Policy and Procedures 9

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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 Purchasing Policy and Procedures 10

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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 Purchasing Policy and Procedures 11

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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. Purchasing Policy and Procedures 12

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Corporate Purchasing Office Responsibilities• Evaluating the effectiveness of purchasing operations• Providing expert support to purchasing department• Performing other tasks detailing corporate purchasing office responsibilities Purchasing Policy and Procedures 13

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Policies Defining the Conduct of Purchasing Personnel• Outline management’s commitment to ethical behavior• Guidance on ethical and questionable business practices Purchasing Policy and Procedures 14

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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) Purchasing Policy and Procedures 15

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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. Purchasing Policy and Procedures 16

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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. Purchasing Policy and Procedures 17

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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. Purchasing Policy and Procedures 18

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Former Employees RepresentingSuppliers• 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. Purchasing Policy and Procedures 19

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Policies Defining Social and Minority Business Objectives• Includes supporting and developing local sources of supply.• Awarding business to qualified minority suppliers Purchasing Policy and Procedures 20

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Supporting Minority BusinessSuppliers• 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. Purchasing Policy and Procedures 21

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Steps to Achieve Policy Objectives Setting forth managements 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. Purchasing Policy and Procedures 22

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• 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. Purchasing Policy and Procedures 23

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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 Purchasing Policy and Procedures 24

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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. Purchasing Policy and Procedures 25

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Principles that support positiverelationships.- 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. Purchasing Policy and Procedures 26

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- Developing open communication channels.- Informing suppliers as to why they did not receive a purchase contract.- Establishing a fair process to award purchase contracts Purchasing Policy and Procedures 27

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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) Purchasing Policy and Procedures 28

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**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. Purchasing Policy and Procedures 29

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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. Purchasing Policy and Procedures 30

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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 buyers facilities. Purchasing Policy and Procedures 31

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REQUIREMENTS FOR DISPOSAL• Evidence of adequate liability insurance on the part of the contractor.• Evidence that the waste transporter uses properly certified disposal sites. Purchasing Policy and Procedures 32

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Supplier Responsibility for DefectiveMaterial 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 Policy and Procedures 33

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PURCHASING PROCEDURES Purchasing Policy and Procedures 34

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Procedures• Operating instructions detailing functional duties or tasks• “how-to”• Should be concise, accurate and complete set of operating instructions Purchasing Policy and Procedures 35

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Procedure Manual• Reference guide for purchasing personnel• Provides consistency and order• Usually more detailed and extensive than policy manual Purchasing Policy and Procedures 36