Procurement procedures are used by organizations to control spending, ensure proper approval, and reduce the risk of overpayments. These procedures cover all aspects of the procurement cycle, including supplier selection, contract negotiations, order placement, and payment. Common procedures include setting value thresholds, creating a short list of pre-approved suppliers, and requiring signed authorization from a handler other than the person using the goods. Proper procurement procedures are essential to avoid excessive risks, failure to achieve good value, and fraudulent purchasing.
Every organization that buys goods or services has standard procurement procedures, the methods they use to acquire those things. These procedures cover all aspects of the procurement cycle, including supplier selection, contract negotiations, order placement and payment. All firms have procurement procedures and are used to control spending activity, ensure proper approval and reduce the risk of overpayments. Acquiring or purchasing activity includes all spending activity, excluding payroll, and often accounts for more than 50 percent of all spending.
The main driving force for the development of procurement procedures is the control of all expenditure. The actual procedures used may vary slightly but will be similar. A proper approval process usually involves a segregation of duties and involving senior managers for transactions that will cost more than a specific price. Another standard procurement procedure is to restrict access to purchase order forms and require signed authorization from a handler other than the person using the goods. This separation between the recipient of the goods and the approval is intended to ensure that a senior staff member is aware of the order and can confirm that the materials are required and will be used for the correct purpose.
Another common procurement procedure is to create a short list of pre-approved suppliers for specific products. Suppliers are added to the list through a bidding process which is conducted on a scheduled basis. This process is designed to be transparent and to give the company the opportunity to obtain price discounts, meet quality standards and ensure timely delivery.
The risks to a company without proper procurement procedures are excessive, failure to achieve good value and fraudulent purchasing. Many people who have no accounting or procurement training postpone the steps involved in a purchase requisition. These processes, however, are designed to save you time and money.
Other common procurement procedures include setting value thresholds that trigger different procurement activities. For example, purchases that cost more than a certain amount might require a purchase order to be approved by two levels of management. A purchase order for a much higher price may require a proposal to be issued.
In some cases, companies may be required to defend their purchasing agreements. If a seller who has participated in the bidding process feels that they have not had a fair opportunity to compete, a lawsuit may be filed. Contract law is a source of great legal activity, and companies with strong procurement processes are best placed to defend their business decisions.
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