Every organization that purchases 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 the selection of the supplier, contract negotiations, order placement and payment. All firms have procurement procedures, and they are used to control spending activity, ensure appropriate approvals are in place and reduce the risk of overpayment. Procurement or purchasing activity encompasses all spending activity, excluding payroll, and often represents more than 50 percent of all expenditures.
The primary driving force for the development of procurement procedures is to control all spending. The actual procedures used can vary slightly but will be similar. An appropriate approval process usually involves a separation of tasks and the involvement of senior managers for transactions that will cost more than a specific price. Another standard procurement procedure is to limit access to the purchase order forms and require signed authorization from a manager other than the person using the goods. This separation of the goods recipient and the approval is designed 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 proper purpose.
Another common procurement procedure is to create a short list of pre-approved vendors for specific commodities. Vendors are added to the list through a bidding process that is conducted on a scheduled basis. This process is designed to be transparent and to provide the firm an opportunity to obtain discounts in price, to meet quality standards and to ensure timeliness of delivery.
The risks for a company without proper procurement procedures are overspending, the failure to achieve good value and purchasing fraud. Many people who do not have any accounting or procurement training resent the steps involved in a purchasing request. These processes, however, are designed to save both time and money.
Other common procurement procedures include setting value thresholds that trigger different procurement activity. 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 might require a proposal to be issued.
In some cases, companies might be required to defend their purchasing contracts. If a vendor who participated in the bidding process feels that they were not provided a fair opportunity to compete, a lawsuit can be filed. Contract law is a source of a great deal of legal activity, and firms with strong procurement procedures are in the best position to defend their business decisions.