Purchasing Policies

Purchasing Policies, all follow procedures. Now, some of us don't like to admit that, but you have principles that guide your life and you follow cert

We all have policies and we all follow procedures. Now, some of us don't like to admit that, but you have principles that guide your life and you follow certain ways of going about the day-to-day activities of your life. Well, business organizations do the same, and they set out those principles and procedures in formal company policies. Policies establish the rules that guide a business organization, and they determine the standard operating procedures of the organization.

An effective policy accomplishes this in a clear, concise, and unambiguous manner that leaves little room for interpretation. Purchasing policies provide specific guidance and support by defining the responsibilities of the purchasing department, guiding the conduct of all purchasing personnel, and identifying appropriate buyer-seller relationships. Let's take a look at some specific purchasing policies that help to accomplish these objectives. Nothing is more important in the purchasing world than ethical conduct. This is the most important thing I want you to remember from this lesson. All large companies have a written code of conduct that guides buyers and their ethical behavior with supplier companies. A good example of unethical conduct is reciprocity, in which you reward a contract to a supplier with the condition that the supplier does something for you. It may be that the supplier kicks back part of the purchase price, or it may be that you require the supplier to buy some of your products in return for the contract.

A well-written policy will outline the specific types of behavior you should avoid to prevent any such misunderstanding with your suppliers. Many companies today also provide a code of conduct for their suppliers. In short, if a supplier wants to do business with your company, there are certain policies they must adhere to and certain practices they must avoid. These policies help a company define corporate social responsibility, not just for itself, but also for its supply chain. And of course, there are environmental considerations. Purchasing policies and supplier codes of conduct define behavior and maintain a legal compliance, and they establish goals to achieve environmental excellence. Many companies require their preferred status suppliers to be compliant with ISO 14001, which defines the standards for environmental management. Some governments actually require corporate environmental policies before you are allowed to do business in their country. Policies will also instruct the purchasing professional how to comply with all laws and regulations. Not just U.S. laws, but the laws of the nations of your suppliers. This is especially significant if your company sources globally.

Purchasing policies establish the business relationship between you and your suppliers. They prescribe how and when invoices will be paid, ensure that contracts are awarded fairly, and define supplier evaluation programs. Policies spell out exactly how suppliers become qualified to do business with your company, and the criteria you use to select your suppliers. A good first step to understanding how purchasing is done in your company is to do a review of current policies. Policies for the purchasing department and codes of conduct for suppliers must be closely aligned. It's important for you to look beyond the boundaries of your company here, and closely review the policies and procedures for your entire supply network. As a purchasing professional, that's the perspective you should have.