All too often employees have little to no understanding of the procurement process in place within their organization. And a surprising number of times, that is because there is no clearly written policy that employees can use to guide them. In some instances, there may be a usual and customary way of making purchases. But without written documentation of those procedures, employees are left to make their own decisions.
This becomes a major problem in the area of indirect spend, defined as materials and services that businesses need for operations but those that do not go directly into the product or service being sold. This is often referred to as back-end spend.
In the case of direct spend, most companies have procurement policies in place. Direct material spend typically has the most policies in place because if the supply is interrupted, the operation of the business would be significantly affected. Regarding indirect spend materials, people can technically do without them without significant impact to the business.
One of the real dangers of not having a procurement policy in place for indirect spend is that someone within the organization will purchase something without being aware of the terms and conditions. Those terms and conditions are the very things that protect your company in the event of an accident.
Your company can also save money by having a procurement policy in place because purchases made on a contract basis ensure consistent, more stable pricing.
A necessary first step a business should take in the area of indirect spend is to establish a written procurement policy. Once that policy is in place, it needs to be communicated throughout the organization. In addition, management should consistently hold employees accountable for the execution of the procurement policy. Employees need to understand the policy in order to mitigate risk. That risk includes having employees spending time “shopping” rather than doing the job for which they were hired.
One good way to ensure that employees know about your procurement process is to include it in the employee handbook and review the procedure during the onboarding process.
After that, you need to consistently monitor spend and to enforce consequences when purchases are made outside the guidelines.
A written procurement policy for indirect spend ensures that the right people are buying the right things in the right way through approved and preferred suppliers.