Today, the procurement function has become a strategic performance lever for companies. To set a clear direction, buyers equip themselves with robust procurement policies. These reference documents offer a clear vision of objectives and key principles that govern the procurement of goods and services essential to the smooth running of activities. In this respect, procurement policies are a key component of both efficient and informed procurement management.
Procurement policy: Definition
A procurement policy defines the general orientations and intentions in how an organisation acquires goods and services supporting its activity. It's a true official roadmap that guides buyers on a daily basis and helps them keep the company's objectives in mind.
The procurement policy must align with the company's vision and values. In this sense, its content varies from one organisation to another. Ultimately, it's nothing other than an operational deployment of the strategy of the company as a whole, applied to the procurement domain.
According to Greg Courts, Senior Procurement Manager at Rio Tinto, any procurement policy "must clearly reflect how it will support the organisation's mission, then explain why you need to buy goods and how you want to buy them. It must consider ethical sourcing, market competitiveness, etc. Once the policy is described, you can write your standards and procedures that explain how you're going to meet the policy requirements."
Policies vs procurement strategies and procedures
The procurement policy should be distinguished from:
- Procurement strategy describes the approaches and methods used to achieve procurement objectives, within the framework of supplier selection, contract management, etc.
- Procurement procedures provide detailed instructions and guidance for carrying out various tasks: creating procurement requests, issuing purchase orders, etc.
The benefits of an effective procurement policy
By formalising the key principles regarding procurement, companies can focus on what really matters to them: controlling costs, limiting risks, ensuring compliance... According to its orientations, the procurement policy becomes a genuine key lever of resilience, economic performance, and sustainable value creation.
Controlling costs
A good procurement policy will help manage expenditure effectively from the expression of needs and optimise budgets. It also facilitates Total Cost of Ownership (TCO) reasoning, integrating both procurement costs and associated costs (transport, maintenance, end-of-life management...).
Improving process efficiency
By establishing clear, standardised and shared regulations, the procurement policy streamlines procurement cycles, accelerates decision-making and facilitates collaboration between stakeholders. This thus promotes overall operational efficiency.
Ensuring compliance
The procurement policy must ensure that all activities related to procurement are fully compliant with internal quality requirements as well as regulatory obligations. This protects organisations from non-compliance risks.
Managing risks
By framing practices and standardising processes, the procurement policy also helps significantly reduce operational risks (stockouts, delays...), financial risks (budget overruns, payment delays...) and supplier risks (failure, reputation...).
Promoting sustainability
The procurement policy can also serve to support the CSR (Corporate Social Responsibility) strategy. It then adopts a dedicated section or transforms into a sustainable procurement policy, aimed at minimising its negative impacts and reinforcing its positive impacts on the environment.
How to build your procurement policy?
To create an efficient procurement policy adapted to the company's needs, four key stages should be followed, from analysing the current situation to monitoring results.
Analysing the current situation
Initially, the company conducts a diagnosis of the current situation of its procurement. The idea is to collect and analyse a whole set of internal data relating to expenditure, listed suppliers, existing contracts, processes and tools used as well as the key performance and satisfaction indicators that are monitored.
This will help identify strengths, weaknesses, opportunities as well as threats relating to procurement. After which, it's about determining possible areas for improvement.
Defining objectives
During the second stage, the company focuses on defining the objectives of its procurement policy. These objectives must be in line with the general policy and the company's needs. This involves questioning the vision of procurement in the company, the values that guide them, as well as the levers to activate to achieve these objectives.
Here are some examples of objectives:
- Develop the economic efficiency of procurement;
- Contribute to the company's overall performance;
- Guarantee respect for fundamental principles and ethical rules;
- Contribute to risk management;
- Develop mutually beneficial relationships with economic operators;
- Integrate social and environmental concerns.
Deploying the procurement policy
The third stage consists of implementing the procurement policy within the company. This involves deploying the organisational and/or functional activities necessary to achieve the previously defined objectives.
This could involve, for example:
- Reorganising the procurement department;
- Training and/or recruiting to acquire required skills;
- Formalising and simplifying procurement processes;
- Diversifying and/or rationalising the supplier portfolio;
- Reviewing existing contracts or concluding new ones;
- Implementing or improving current tools;
- Communicating with internal and external stakeholders.
Monitoring and evaluating the procurement policy
Lastly, the fourth and final stage focuses on monitoring and evaluating the procurement policy. The company will then measure and control the results it obtains compared to the objectives it has set itself.
To do this, it needs to monitor its key performance and satisfaction indicators but also conduct audits and surveys with its suppliers and internal customers. It can then compare these results with external data, such as market benchmarks.
Some examples of key performance indicators
- Procurement savings, also called procurement gains;
- The proportion of markets incorporating at least one social or environmental consideration;
- The digitalisation rate of orders;
- Internal customer satisfaction;
- The off-contract procurement rate.
Following this, these insights pave the way for implementing corrective or preventive action plans, as well as communicating results and progress made to different stakeholders.
As you can see, carefully developing a procurement policy lays the foundations for a strategic function capable of contributing to the company's major challenges.
