2/2/2019

PROCUREMENT POLICY

SHARFUDDIN LISAN
BBA,BA(HONS)ENGLISH, DSC,DHRM,MA, MHRM(DU),
PGDSCM, MBA(SCM)-CANADA
,LISANBD@YMAIL.COM, INFO@BIHRM.ORG
01731822888

AGENDA

 Policy Overview
 What Are the Advantages and Disadvantages of Policies?
 What Makes for an Effective Policy?
 Purchasing Policies—Providing Guidance and Direction
 Policies Defining the Role of Purchasing
 Policies Defining the Conduct of Purchasing Personnel
 Policies Defining Social and Minority
 Business Objectives
 Policies Defining Buyer-Seller Relationships
 Policies Defining Operational Issues

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POLICY OVERVIEW

 The term policy includes all the directives, both explicit and implied, that designate the
aims and ends of an organization and the appropriate means used in their
accomplishment.
 Policy refers to the set of purposes, principles, and rules of action that guide
an organization.
 Rules of action refer to standard operating procedures along with any rules
and regulations. Although policies are usually documented in writing, unwritten or
informal policies can also exist. Informal policies are understood over time and
eventually become part of an organization’s culture.

ADVANTAGES

 opportunity to define and clarify top management objectives.

 means for executive management to communicate its leadership and views.
 policies provide a framework for consistent decision making and action
 consistent with executive or functional management’s expectations.
 Finally, an effective policy provides an additional advantage by defining the rules
and procedures that apply to all employees.

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DISADVANTAGES

 a policy is often difficult to communicate throughout large organizations.

 Second, employees might view policies as substitute for effective management.
Policy statements are guidelines that outline management’s belief or position on
a topic
 Third, policy development can also restrict innovation and flexibility.

SEVERAL CHARACTERISTICS OF A POLICY

RENDER IT EFFECTIVE

 Effective policies are action-oriented guidelines that provide guidance.

 They provide enough detail to direct behavior toward a specific goal or objective
but are not so detailed that they discourage personnel from following the policy.
 An effective policy is relevant (avoiding trivial or unimportant issues) and
concise(stating a position with a minimum number of words).
 An effective policy is unambiguous, allowing personnel little doubt as to how to
interpret the policy’s intent and direction.

Policies that are subject to different interpretations will, over a period of time, result
in several possible outcomes. This can lead to inconsistent behavior, as people will
simply ignore the policy because it is so difficult to interpret.

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 Action oriented
 Relevant
 Concise
 Unambiguous/well understood
 Timely and current
 Guide problem solving and behavior

PURCHASING POLICIES—PROVIDING GUIDANCE

AND DIRECTION

 Policies defining the role of purchasing

 Policies defining the conduct of purchasing personnel
 Policies defining social and minority business objectives
 Policies defining buyer-seller relationships
 Policies defining operational issues

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OBJECTIVES OF THE PURCHASING FUNCTION

 To select suppliers that meet purchase and performance requirements

 To purchase materials and services that comply with engineering and quality
standards
 To promote buyer-seller relations and to encourage supplier contribution
 To treat all suppliers fairly and ethically
 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
that staff

I. POLICIES DEfiNING THE CONDUCT OF

PURCHASING PERSONNEL

a. Ethics Policy
b. Reciprocity Policy
A formal policy often exists detailing management’s opposition to reciprocal
purchase agreements.
A buyer gives preference to suppliers that 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 that purchase the
buyer’s products.

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C. CONTACTS AND VISITS TO SUPPLIERS

An understanding must exist regarding direct visits or other communication contacts

with suppliers or potential suppliers.
This policy should address not only purchasing personnel but also other departments or
functions that visit or contact suppliers. Purchasing wants to control unauthorized
or excessive contacts or visits because these can impose an unnecessary
burden on suppliers.
Also, unauthorized supplier visits or contacts by non-purchasing personnel
undermine purchasing’s legitimate authority as the principal commercial
contact with suppliers. Purchasing wants to avoid situations where suppliers might
interpret statements and opinions offered by non-purchasing personnel as commitments.

D. FORMER EMPLOYEES REPRESENTING

SUPPLIERS

Occasionally, an employee may leave to work for a supplier. This is a concern

because the former employee probably has knowledge about business plans or
other confidential information that might provide an unfair advantage over other
suppliers.
One way to address this issue is to establish a policy prohibiting business
transactions with suppliers that employ former employees known to have inside or
confidential information. This exclusion can range from a period of a few months to
several years, depending on the employee and the situation. Another possibility
involves including a clause in the employee’s original employment contract
prohibiting employment with a competitor or a supplier for a specified time. This
can offset the advantage a former employee may have from his or her previous
employment.

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E. REPORTING OF IRREGULAR BUSINESS

DEALINGS WITH SUPPLIERS

 This policy may establish a reporting mechanism for buyers or other employees
to report irregular business dealings.
 Examples of irregular dealings include accepting bribes from suppliers, cronyism,
accepting late bids, owning a stake in a supplier’s company, and other types of
behavior that are not considered part of the normal course of business.
 The policy can specify the proper office to which to report the irregularity, the
safeguards in place to protect the reporting party, and the need to report
suspected irregularities as soon as possible.
 This policy sends the message that management will not tolerate irregular
business transactions involving employees.

F. POLICIES DEfiNING SOCIAL AND MINORITY

BUSINESS OBJECTIVES

 Set forth management’s commitment on this subject

 Evaluate the performance potential of small and disadvantaged suppliers to
identify those qualifying for supplier assistance
 Invite small and disadvantaged suppliers to bid on purchase contracts
 Establish a minimum percentage of business to award to qualified small and
disadvantaged suppliers
 Outline a training program to educate buyers regarding the needs of the small
and disadvantaged suppliers

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G. ENVIRONMENTAL ISSUES

 A set of policies outlining a position related to environmental issues is becoming

 increasingly important. Moreover, governments are now requiring such policies
by
 law. These policies include the use of recycled material; strict compliance with
local,
 state, and federal regulations; and proper disposal of waste material.

H. POLICIES DEfiNING BUYER-SELLER

RELATIONSHIPS

 Supplier Relations:
 Treating suppliers fairly and with integrity
 Supporting and developing those suppliers that 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
 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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I. QUALIfiCATION AND SUPPLIER

SELECTION

 Price/cost competitiveness
 • Product quality
 • Delivery performance
 • Financial condition
 • Engineering and manufacturing technical competence
 • Management of its own suppliers
 • Management capability
 • Ability to work with the customer
 • Potential for innovation

J. PRINCIPLES AND GUIDELINES FOR

AWARDING PURCHASE CONTRACTS

 Buyer’s authority to award a contract within a certain dollar limit

 Conditions where the competitive bid process is and is not acceptable
 Conditions outlining the use of competitive bids
 Process of analyzing sealed competitive bids
 Conditions prompting the sourcing of an item to other than the lowest bid
supplier
 Conditions prompting a rebid
 Operating guidelines that pertain to the negotiation of contracts with suppliers

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K. Labor or Other Difficulties at Suppliers

l. Other Policies Dealing with Buyer-Seller Relations
n. Hazardous Materials
m. Supplier Responsibility for Defective Material
o. Purchased Item Comparisons
p. Other Operating Policies

II. PURCHASING PROCEDURAL AREAS

 The Purchasing Cycle

 The Proper Use of Purchasing Forms
 The Development of Legal Contracts
 Basic features of the standard purchase contract
• Basic contract principles
• Execution and administration of agreements
• Essential elements of the contract
• Compliance with contract terms and performance assessment
• Formal competitive contracting procedures
• Contract development process

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OPERATIONAL PROCEDURES

 Operational Procedures
 Control of material furnished to • Procedures for cost analysis
suppliers • Acceptable cost reduction techniques and
 Storage of purchasing documents documentation
• Intracompany transactions
 Process of supplier qualification • Processing and handling of overshipments
 Use of purchasing computerized • Supplier acknowledgment of purchase
systems orders
• Disposition of nonconforming purchased
 Analysis of competitive quotations material
 Use of single source selection • Removal of company-owned tooling from
supplier
 Requirements for order pricing and
analysis

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THANKS

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