Policy Implementation Report
The role of purchasing has evolved from the traditional need to satisfy operational requirements to a process including supply continuity, stakeholder engagement, supply base management and the development of strategic sourcing strategies. After reviewing my organizations current purchasing strategy, or lack thereof; my goal is to initiate and implement an effective RFP Policy within the organization. The procedure will need to align with the executive vision and internal user-specific business goals. To implement an RFP policy that is effective, it will need to be a repeatable, well-defined process.
Following the analysis of the current policies surrounding purchasing, an outline proposing a process based on the model of the contract management lifecycle is outlined. The model includes the key elements required to initiate, bid, develop, negotiate and manage the process. The outlined policy will be proposed to senior management in an effort relate the benefits and advantages our organization would realize through its implementation.? Current RFP Policy Following a search to locate an existing RFP or Purchasing Policy within my organization, I was led to a binder holding the contents I desired.
After reading the policies, I understood why they are not readily accessible. Besides the fact that they are archaic, confusing, and impossible to implement, the current system enables an environment of maverick purchasing by position. Cost efficiencies that could be realized from a current, well-structured RFP Policy are non-existent. The two purchasing policies identified are a Purchase Order Policy and an Application for Expenditure Policy. The entire purchasing process is summed up in eight pages shared between two documents.
The subsequent section contains my analysis of issues contained within the policies, followed by recommendations to for improvement. Policy Analysis PURCHASE ORDER POLICY This policy begins with a Responsibility Statement, “Purchasing and ordering is the responsibility of Management. ” There are multiple management positions within the organization and not all of them participate in purchasing. It later implies that anyone who purchases, completes a budget; since only the department heads and station managers’ complete budgets; that would eliminate the majority of the other management positions.
But it also eliminates all department heads since they are all titled as, “Directors,” not managers. So who exactly is responsible for purchasing? The responsibility statement is vague, and needs to be clearly defined. Moving past the statement of responsibility, we come to the, “When to Use,” section. “Purchase orders must be used when purchases or aggregate purchases will exceed $500. 00, unless; the purchase is for travel, accommodations or training courses, in which case a purchase order must always be used. ” The exemptions from requiring a purchase order at all are: utilities, rent, phone, employee expenses, or vehicle lease agreements.
All purchase orders must be authorized pre-purchase by finance and sent to Accounts Payable. Blanket purchase orders for purchases from the same supplier or vendor for items such as “water,” must be pre-approved and can last for a duration of 6 or 12 months. The section is poorly defined, unclear and contradictory. The first contradiction is that a purchase order is always required for travel and accommodations expenses, yet employee expenses are exempt; even though a large number of travel and accommodation expenses would typically be incurred by employees.
The second contradiction is that utilities are exempt but blanket purchase orders for purchases such as, “water,” can be pre-approved. Is water not a utility? What specifically are: finance, utilities, and travel? How do you pre-approve aggregate expenses when you are unsure the aggregate total will exceed $500. 00? This section requires clear definitions and instructions to be certain that a clear process and clarity of requirements is provided. To conclude this Policy, there is a sample purchase order form. The form contains no standard terms and conditions and requires two authorized signatures.
We will shortly come to the Delegation of Authority form, which empowers individuals with signing authority based on dollar limits. I will assume, since there is no explanation that this must be one of the required signatures. Again, for lack of clarity and an assumption based on the previous section, the second signature must be from finance. This needs to be defined. There should also be standard terms and conditions to cover minimally, the basics related to delivery (if required), cancellation, dollar limit, procedure for differences or additionally added items, legal remedies, and compliance toprovincial and federal law. Delegation of Authority The delegation of authority empowers the named individual with signing authority for a set dollar limit and temporary authority to initiate, process, and review business transactions. The individual must also provide a back-up delegation authority who can sign for the delegated authority if they are absent for more than a week. Other than having very confusing wording, this form does not take into account emergency situations where a signature requirement could occur in less than a weeks’ time. Capital Expenditure Policy
The Capital Expenditure Policy is for, “items purchased with related spending benefits that extend beyond one year. ” Examples are: “Air Trailers, computers, office furniture, certain major repairs to extend the life of an asset, etc. ” There are two categories of capital spend, those budgeted for and those not budgeted for. Unbudgeted capital spend has separate limits. There is a, “management discretionary fund,” for up to $100,000. 00 per quarter for items outside of the budget. If an individual is requesting capital for a budgeted item, the following applies: Required Approval
My recommendation following analysis is that an RFP Policy be implemented to replace the existing purchasing policies. The following section details the plan of action to implement the new policy. It will be my recommendation to build and implement the policy by January 2015. Plan of Action The components to build a RFP Policy follow the contract management lifecycle of: Initiate, Bid, Develop, Negotiate, and Manage. Many processes have been implemented over the past two years confirming that the organization has evolved from a compilation of mom and pop companies to process-driven, strategic organization.
The following discussion details the initial steps and procedures required to create the RFP Policy and further the organization in this direction. Initiate To ensure consistency in the implementation of the new policy, a trained, cross-functional purchasing team will need to be recruited to manage the process. The purchasing team will work with all departments (operations, legal, marketing, sales, billings and finance) in a proactive manner to help assess upcoming needs and bidding requirements.
The team will also be responsible for identifying, qualifying and sourcing potential suppliers; including supplier development and the maintenance of a supplier database. Supplier selection will be based on scorecards which have pre-determined weights for evaluation criteria categories, e. g. , cost, on-time delivery, safety, financial, and technical status. A numerical score will be developed for each supplier by category and will give each supplier a final performance score. Bid During the Bid stage, a series of steps are required.
The first being that the conditions under which there is a requirement / or it is most advantageous to bid, must be defined. Aside from identifying an internal dollar value where this would come into effect, the purchasing team would need to evaluate if the conditions to bid are favorable. •Is the marketplace competitive; are there a sufficient number of suppliers or vendors who would want the contract •Is there enough volume to justify it •Are the specifications or scope clear enough that the suppliers can accurately predict the cost •Is there enough time to prepare an RFP and have suppliers respond If the dollar value is high enough and the conditions are favorable, the purchasing team would prepare an RFP. Proposal Creation Process: •Ensure the RFP is presented in a professional document and format •Clearly state the intent of the RFP •Define critical dates, e. g. , acknowledgment and closing deadlines •Clearly describe the item or required need including all specifications and standards required •Request information about the supplier to evaluate the completed proposals •Inform the bidders of their contractual obligations following award and supply a sample MSA for review •Inform the vendor/supplier of the evaluation criteria
•Provide clear instructions to the bidder •Provide complete, clear instruction for responding to the commercial terms including all items relating to warranty, liability, payment terms, insurance •Choose 3 vendors/suppliers from the top scoring, evaluated suppliers to send the proposal to. ? Develop The internal purchasing strategy will need to be consistently developed. An executive level committee will need be created to assess the importance of all purchased items and determine where to focus supplier development efforts.
A strategy which should include benchmarks, meetings with supplier management, and the definition of key performance indicators and cost-sharing mechanisms should be formed. The strategy should be measurable, and reviewed quarterly to determine its effectiveness. During the development stage the contractual terms should be reviewed to ensure that they are effective: is the correct type of contract being used for the services provided? Is there a need for more than one type of contract?
This should be initiated by the executive committee in cooperation with the legal department. The organization should employ proactive contract strategies to help alleviate future problems. It is better to spend the time up front to clearly define the needs of both parties. Contract disputes can end commercially beneficial relationships. Negotiate A negotiation strategy for reaching mutually beneficial agreements with our suppliers will need to be developed.
The strategies should take into account all of the internal stakeholders who would be affected by the outcome of the negotiations. Ensuring that stakeholders are taken into consideration prior to negotiation will eliminate unwanted surprises during and following the negotiation process. The organizations position on major issues, negotiation tactics, and format should be determined ahead of time. For the process and the strategies to be operational, they must be backed by executive management who would supply the resources to ensure their effectiveness.
Manage Contracts that have been successfully negotiated will need to be managed. The process is not complete once the contract is signed. The key performance indicators for the contract will need to be monitored to ensure compliance to its terms, e. g. , safety implementations, payment. This could be completed by the purchasing team or through the use of an electronic contract management system. Management includes maintaining effective communication and an ongoing relationship with the supplier.