What does your procurement policy look like? Is it long, hard to follow, or out of touch with daily operations? If so, it’s not surprising that teams work around it when actual purchases come up.
A well-crafted procurement policy works differently. Instead of listing theoretical rules, it gives teams clear approval paths, defined supplier selection criteria, and pricing rules they can apply immediately.
Whether you build your first policy or fix one that no longer works, this article will help you move forward. Here, we explain what a procurement policy is, cover the core basics, and share a proven approach with practical tips to support its implementation.
What is a procurement policy?
A procurement policy acts as the rulebook for buying goods and services across the company.
It explains which suppliers can be selected, when authorization is required, and how purchases are handled.
For example, the policy can define what is net price and when it should be used for approval decisions, rather than relying on gross amounts.
Crafted clearly, these guidelines ensure:
- Tightened compliance: Defined rules mitigate audit risk and regulatory exposure.
- Greater efficiency: Standard approval flows cut delays and manual work.
- Better cost control: Budget limits prevent overspending and exceptions.
- Stronger supplier relationships: Consistent processes foster trust and stability.
Procurement policy basics
Drivers may take their own routes, but they still follow the same road rules. Procurement policies aren’t much different in practice. They are shaped by business goals and needs, but the core structure stays the same.
Policy objective and scope
State the purpose of the policy and the goals it supports. Base purchase decisions on specific business priorities, not just on lowering costs.
Set up a single process for requesting products or services across the organization. Additionally, ensure each purchase supports a clear business priority, the supplier meets your requirements, and decisions consider both cost and value.
Process overview
Spell out how requests are reviewed, approved, and completed. Make it simple. Visuals show the structure at a glance, so feel free to include a simple diagram if it helps clarify the flow.
A typical sequence might look like this:
- A request is submitted with the business need, timing, and estimated cost.
- Procurement reviews and approves the request to confirm it complies with the policy.
- If required, the same team runs a sourcing step (RFI, RFP, or RFQ).
- A supplier is chosen based on agreed criteria.
- Contract terms are reviewed and signed.
- Procurement issues a purchase order.
- The supplier delivers the goods or services and submits an invoice.
- The AP team processes the payment.
Roles and approval structure
A procurement policy should make ownership obvious. When roles aren’t defined, work slows to a crawl. Requests sit, approvals get passed around, and decisions fall into a gray area.
At a minimum, the policy should answer:
- Who can initiate a purchase? Specify which roles or teams are allowed to submit purchase requests.
- Who approves spending? Set authorization limits by role so it’s clear when extra sign-off is needed.
- Who manages suppliers? Clarify who is in charge of supplier negotiations to avoid side deals.
- How are exceptions handled? Explain when exceptions are allowed and who can approve them.
Supplier selection and management
A procurement policy should leave no room for confusion around supplier approval. Start with the basics: qualification and due diligence. Include checks on pricing, reliability, financial footing, and past performance. Stick to the same criteria so decisions don’t get rushed or biased.
Once a supplier is onboarded, a small set of practical measures, such as delivery reliability, contract compliance, and service quality, does the job.
The policy should define what to do next when issues come up. Sometimes that’s a conversation. Sometimes it’s corrective actions. In other cases, it’s time to replace the supplier.
Remember, well-set expectations act as a safety belt for supplier management.
Ethics and conflict of interest
Cover core principles such as fairness, transparency, and accountability. Also, address high-risk situations, including conflicts of interest and bribery.
You don’t need to invent these standards on your own. The Institute for Supply Management (ISM) or the Chartered Institute of Procurement & Supply (CIPS) offers practical benchmarks for ethical sourcing and supplier conduct.
Other sections found in procurement policies
- Approval thresholds and spend limits
- Contracting requirements
- Risk management and mitigation strategies
- Recordkeeping and audit requirements
How to create a procurement policy step by step
An effective procurement policy is the result of deliberate decisions made in the right order. The steps below lay out how to put that structure in place.
1. Set objectives based on real needs
Take an honest look at how procurement works today. Where do requests get stuck? Which workarounds have become normal? Talk to the teams involved in purchasing and ask what actually slows them down or causes friction.
Only then is it time to define objectives. Keep them grounded. For some organizations, that means tighter spend control. For others, it’s faster approvals or better visibility into suppliers. The point is alignment with real business priorities, not a perfect framework.
2. Build a dedicated implementation team
Create a small team to handle development and rollout, including members from procurement, legal, risk, IT, compliance, and change management. Give each person a clear task, and appoint one lead to make final decisions.
3. Research legal and industry requirements
Before writing a policy, confirm which laws and standards apply to your business. This step matters even more if you operate across regions or in regulated sectors such as healthcare, education, or public contracting.
4. Write the policy
Draft the policy section by section. Use plain language, add clear headings, and focus on clarity so staff can follow it in their daily work.
5. Stakeholder review and approval
Get the draft in front of the right people. Start with your supervisor. After that, involve finance, legal, operations, or IT to challenge the content and call out weak spots.
Feedback should be considered carefully. You don’t need to take on every suggestion. Avoid edits that add complexity without value.
After revisions, submit the final version for executive approval. Formal sign-off gives the policy authority and sets the expectation that it will be applied consistently across the business.
Final thoughts
Now, you have a clear plan for your procurement policy. Follow each step carefully. Start with one specific change (set approval limits or write supplier rules), and use it in your daily operations.
