Developing policies to help govern procurement is generally considered a best practice. However, if not done properly, it can create its own set of issues.
The use of a good governance program and the right policies starts with an organization’s culture and
Policy generally contains the following components:
• Spend Authority
• Contracting Process
• Bid Requirements
• Supplier Management
• Payment Vehicles
This is the first in a series of posts that will address all five.
We start with spend authority, identifying who can sign off on what level of expenditure. When CFOs and CEOs start thinking about the appropriate spending levels for their organization it can be easy to not focus on the rolebut on the people. Concern around a person’s ability may diminish the associated role of that title across the entire organization thus taking away other people’s ability to effectively run their business
Mismatched authorization levels can degrade trust within a corporate structure and add undo bureaucracy. So when setting spend authority limits for an organization, taking the following steps can help avoid this issue:
- Make spending limit decisions based on the role across the organization
- Understand current spend patterns to guide limit setting
- Encourage a culture of stewardship, where everyone spends the company’s money as their own
-
Clearly define the objective of the policy, balancing
risk , control, and process efficiency
Taking these steps first can help put your company on the right path to spend smarter and grow smarter!
