Who should approve procurement policy?

Photo: Agree by Pixabay
Photo: “I agree” by Pixabay

Who should approve the procurement policy? Are there certain trends or tendencies? And what difference does it make? In this post, we will have a look at different procurement policies and look for answers to these questions.

I targeted organizations from a number of regions, industries and of different sizes in order to see whether there are certain trends and tendencies. It is not a straightforward task to find procurement policies on internet, as some companies perhaps consider them as internal documents and do not share with public. Still I managed to go through a sample group of 30 procurement policies. It is not a large sample, but good enough for insights.

So let’s jump to results right away:

Trends and tendencies

Here are some of my impressions:

  1. Board of Directors or CEO/GM give final approval to procurement policies in almost all cases. (Board approval 50%, CEO/GM approval 43% of cases).
  2. Size matters. At large scale organizations, usually Board of Directors, or a committee of Board of Directors, such as Oversight Committee or Ethics & Compliance Committee give final approvals. At smaller organizations, usually CEO, General Manager or the Management Board give final approvals. However there are exceptions to both.
  3. In a few cases, CFO gives final approval to procurement policies. It is interesting that this was the case only for two companies out of 30 in our sample, and both companies were based in Australia. There is a third Australian company, where CEO gave the final approval, but having two cases with CFO approvals still seem more than a coincidence to me. There might be some cultural factors playing a role here. It may also have something to do with reporting lines of procurement function. I am planning to write more about reporting lines of CPOs in a separate post.
  4. There is a good practice of Transneft company from New Zealand in order to get procurement policy approved by the Board, but still keeping some flexibility in order to quickly react to changes in business and environment. They added the following reservation on the page regarding approvals: “CEO has authority to approve minor revisions (not material ones) or amendments without the requirement for repeat approval.”
  5. “Policy”, “procedure”, “regulation” terms are used almost synonymously. Although there is no standard terminology, there are some tendencies. The term “policy” often refers to a short statement (one or two pages) from top management mentioning about high level principles about procurement process in general. The term “procedure” often refers to detailed rules with clear responsibilities and approval schemes. Many Russian companies prefer the term “regulation” (положение) instead of “procedure”.
  6. All over the world, universities and private schools share their procurement policies publicly. When it comes to other organizations, regional differences are clear. Russia and India are champions in transparency and sharing policies online. In western economies, such as US, Europe and Australia, many organizations share short policy statements and/or sustainable/responsible procurement policies, but very few of them share detailed procedures. In Turkey, almost none of the organizations share procurement policies or procedures, except some multinations that simply translated global sustainable procurement guidelines to Turkish language. We may try to explain attempts for increased transparency in Russia and India with perceived corruption in these countries, but then again, it would be difficult to fit the case of Turkey to this explanation.
  7. There is not a clear tendency in terms of practices of different industries.

Procurement department in most organizations carries out major bulk of procurement activity, but not all of it. Is important that functions other than procurement are equally aware of and in compliance with procurement policy. Therefore, the larger number of employees an organization has, the higher is authorization requirement for procurement policy.

 icon-key  Key learnings

Following points seem critical to success in my experience:

  1. Get procurement policy approval at highest level possible. Practically this is the Board or CEO.
  2. Align and confirm policy with all key functions and C-level executives to increase their engagement.
  3. Consider allowing minor changes to be authorized at a lower level than normally required. Define what major and minor changes mean.
  4. Consider creating short procurement policy to share ethics and responsible/sustainable procurement principles with general public and especially suppliers in addition to regular procurement procedure (which is in detail and probably not public)

 icon-road  Way forward

A small survey

Let’s try to extend this survey. May I ask you to answer five simple questions in the comment box below?

  • Location of your organization (country)
  • Size of your organization (large/small)
  • In which business line is your organization? (manufacturing/ services/ banking/ goverment/ non-profit, etc.)
  • Who approves procurement policy in your organization? (Board / GM or CEO / if other pls indicate)
  • Name your organization (Optional, just skip if you want to keep your response anonymous)
How does your procurement policy compare to others?

If you have read up to this point, you deserve a bonus. I thought you will find it interesting to have access to these procurement policies. You may want to read through and compare with your own policies in order to see where your organization is strong and where it has areas for improvement. (I plan to write a separate post on policy content at a later time.)

So here are the links to all resources:

Nestle Global, GazpromSberbankToyota Global, Aeroflot, EBRD, VTB Bank, Rostelekom, Transpower, Lukoil, Rosseti, Fuji Xerox Australia, Andrew Yule Group, WHO, RusAtom, RosNano, Citipower&Powercor, Huron Perth Healthcare, PPP Canada, Bield, Anglo American, Oil India, Aurora Energy, Meram Elektrik , Dube Trade Transport, Headwaters Health, Northwestern University, Concern Electropribor, Oren Air, Severniy Trubniy Zavod

Important disclaimer: All documents are publicly available on each organization’s official website. I have no intentions to infringe copyrighted or confidential corporate information.

 

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