How to Ensure Procurement Policy Compliance

How is your organisation set up when it comes to purchasing? Is there a centralised procurement function with clear policies in place, or can any employee act as a “buyer,” making purchases with company money on their own accord?

When decentralised purchasing is possible, serious thought needs to be given on how to ensure buyers outside of the procurement function comply with procurement policy. Otherwise, the organisation may be exposed to factors including:

• increased risk
• increased costs
• a lack of transparency
• a lack of adherence to procurement policy

So, what steps or changes can procurement make to ensure compliance? In this article, we’ll cover some examples of, and reasons for, noncompliance, as well as techniques and tools you can use to drive procurement policy compliance within your organisation.

Examples of Procurement Policy Noncompliance 

Depending on the type of procurement policies you have set up, examples of noncompliance could include:

• Buyers booking travel on their favourite airline instead of using the preferred supplier relationship established by the organisation
• Buyers running to buy office supplies at a local store versus placing an order via the pre-negotiated contract
• Buyers using their own corporate credit card to make a purchase instead of using a Purchase Order

These purchases are often caused due to a lack of knowledge or understanding of the types of procurement policies in place. This can occur even if you have a lengthy guide on procurement policy available (or specifically because it is long and hard to memorise).

Why is Procurement Compliance Important?

When buyers adhere to procurement policies, the organisation benefits as a whole. Managing spend and procurement compliance leads to overall lower costs thanks to everyone making purchases that are within pre-approved spend limits and “on contract” or through approved vendors.

Supplier relationships flourish as well. The procurement department spends countless hours developing relationships with suppliers and vendors that are built on trust and transparency. When buyers purchase from an unapproved vendor, it’s possible that contracts have been breached and the organisation is at risk of losing a previously negotiated discount.

Perhaps the most important reason for procurement policy compliance is a company’s ability to track employee spending and have reliable spend data. Without following policy and procedures, there’s no way for the organisation to have the full picture of what is being purchased or where money is being spent. Procurement is unable to conduct useful spend analyses, identify needs or contract gaps, or revisit existing contracts that could benefit from a review.

A recent study found that improved compliance monitoring improved buyer experience and led to a 58% reduction in lost savings from maverick, or noncompliant, spend.

Is Centralised Procurement Good for Compliance?

Some organisations require a purchase order to be approved before it can be sent to a supplier. This is to ensure that the procurement team has the chance to review planned spend before a purchase takes place, approving requests that fall within guidelines and rejecting those that do not follow policy. Organisations may even decide that the best way to ensure policy compliance is to have all spend initiated by the procurement function.

While effective on one level, these approaches can quickly lead to bottlenecks, as procurement must approve every transaction, regardless of complexity, value, or risk.

How to Get Buyers to Follow Procurement Policy

People are creatures of habit and retraining certain behaviours can be challenging. This is certainly true when it comes to purchasing. Here are some ways procurement can encourage all employees across departments to follow procurement policy.

1. Training and education

Training and education surrounding procurement policy, purchasing expectations, and how buyers go about purchasing goods and services should be included during the initial employee onboarding process. Explain the reasoning behind certain procedures and that policies are put in place to protect the company as a whole. This will hopefully curb any unwanted spending behaviours and instil the organisation’s cost-conscious culture.

Keep in mind it’s equally important to offer regular, ongoing training throughout an employee’s tenure to keep procurement policy top-of-mind, as well as any time a policy is updated so buyers are aware of any changes.

2. Identify why non-compliance is happening

If buyers are not following procurement policy, it’s up to the procurement department to find out why it’s happening in the first place. Are the processes that have been created outdated or too confusing? Does it take a lot of time for buyers to make a purchase? Is your P2P system hard to use? Identifying and eliminating roadblocks is key when it comes to ensuring people are following policy.

3. Get stakeholder support

When you have support from the top, it tends to be easier to implement policies and encourage buyers to follow those policies. The CFO will want to know about the issues procurement is facing when it comes to getting buyers to follow certain purchasing guidelines as it directly relates to savings and the organisation’s bottom line.

Other stakeholders like department VPs can help relay information and the importance of following policy to their direct reports.

If you’re able to present the data, like how much money is truly being left on the table by rogue spenders, key stakeholders should be willing and able to support your efforts.

4. Use technology

If your organisation is not currently using technology to assist with managing spend, now is the time to make a change. Implementing an e-procurement system may seem like a big endeavour, but worth it if just one of the benefits is to help make sure procurement policy is not ignored.

There are several types of software available that can help put a stop to noncompliant spending, track supplier KPIs, and assist with making sure buyers are following policies.

Ensure Procurement Compliance with VendorPanel Policy Guide

Finding the right procurement solution is key but, in the end, the goal of any technology should be to help you achieve lower risk, more efficient procurement. VendorPanel is reshaping the way organisations and people manage procurement, delivering smart and impactful solutions for world-class outcomes.

With Policy Guide, companies can achieve foolproof procurement compliance for every sourcing event. Buyers can confidently go to market, understanding how to buy before the purchase is made thanks to the platform’s step-by-step instructions, which detail exactly what is needed based on what they’re buying.

The solution allows procurement leaders to configure workflows that guide buyers through policies based on spend level, risk, product or service type and other factors. Based on answers to a series of questions, the buyer can be taken to an RFP template, a procurement planning tool, a catalogue or travel booking site. One advantage is that the amount of spend under contract can be maximised, as buyers are directed to preferred suppliers where arrangements exist

Policy Guide also means that policies can be automatically updated when they change, and that new staff have immediate access to the latest version.

Need more information?

To see if VendorPanel Policy Guide is a good fit for your organisation, request a demo or contact us here.