How to turn a corporate business strategy into reality?
In the L4M1 exams, many students frequently encounter questions related to procurement policies, procedures, and processes. Some struggle to elaborate on their answers regarding policies because they don’t fully understand what policies are or where they originate from. In this post, I will outline a classic hierarchy (Figure 1) that shows how broad strategies are refined into actionable steps.
Stage 1: Coporate strategies
An organization is established with a specific mission. Its leaders begin with a broad goal and strategic direction which involve the decisons on competitve position in the market and long-term goals. For example, Company A aims to become a price leader in the car manufacturing industry to gain market share. Since the market includes well-established luxury car manufacturers, Company A must find a new approach to attract low-end customers and maintain its competitive advantage. Another example is Company B, which emphasizes sustainability in its business strategy. This means its goals incorporate three key factors: Planet, People, and Profit which are the company’s three core pillars. Once strategies are developed, the organization must determine how to implement them through policies.
Stage 2: Policies
From the strategic objectives, the organization starts building their rules and principles to support its strategies. It establishes standards for corporate conduct and individual behavior to achieve its expected goals. Depending on the scope of the business, it will develop relevant policies. For example, if the company aims to become a price leader in the market, it needs to implement appropriate policies to achieve that goal, such as:
- Legal compliance policy: Ensures that all procurement activities adhere to local, national, and international laws related to labor, taxation, environment, anti-corruption, competition, contracts, and more. Depending on the business scope, the organization may develop separate policies for each area.
Competition law policies prevent unfair treatment for suppliers
Contractual law policies ensure that all supplier contracts are legally binding and reviewed for comliance to relevant laws
Data privary and sercurity policies ensure that procurement professionals comply with data protection law such GDPR. The organization establishes rules for how to handle personal data and give individulas more control over their data
Custom law policies ensure that the organization complies with trade regulation when importing goods, including regulation on tax and tarrif when sourcing internationally
Anti-corruption and anti-bribery policies ensures that the organization does not engage in unethical practices such bribery, kick-back or big rigging.
- Competitve bidding policies ensure that all purchases achieve value for money through bidding such as the buyers have to implement bidding process for purchases above a certain value threshold or comply with requirements of developing the supplier assessment criteria.
- Sustainable procurement policies ensure that all purchased goods and services are eco-friendly and socially responsible.
- Purchasing authority policies define who can approve the purchase, who can make the purchase or who can set spending limits.
- Record keeping and audit policies ensure that all procurement activies and relevant documents are recorded and stored in appropriate places. All activities can be tracked when auditing the organization such as who was a orginator of the purchase, who approved the purchase, who made the purchase or who paid the invoice of the purchase…
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Stage 3: Processes
After developing procurement policies, the organization continues to design a structured series of activities to implement them. If the organization stops at policy development, employees may struggle to ensure their tasks comply with business policies. Each employee has a unique perspective, which can lead to misinterpretation. Therefore, clear guidance is essential to help staff adhere to policies while performing their duties
While policies outline what is acceptable, required and prohibited behavior, processes clearly define a series of activities aimed at achieving the business’s objectives. Processes are designed in alignment with the requirements outlined in the policies. For example, sustainable procurement policies require buyers to select suppliers who are committed to sustainability. The buyers need to incorporate sustainability across activities in the process. For example, when developing specifications, buyers should incorporate requirements for eco-friendly materials and standards related to environmental responsibility. They also need to prepare sustainability criteria to assess suppliers, ensuring that the selected ones are accountable to both the community and the environment.
CIPS procuremement cycle is an example of a process. By building a clear and structured procurement process, the organization helps buyers follow defined steps when conducting tasks. Without such processes, buyers may rely on personal experience and instinct, potentially resulting in inefficiencies.
Stage 4: Procedures
Not every procurement task is simple. The organization needs to develop step-by-step instructions for specific tasks within each process, this is known as a procedure. The procedures must comply with the requirements outlined in the procurement policies. For example, when a buyer wants to send an RFQ (Request for Quotation) to suppliers, they must follow a series of steps to ensure the activity adheres to competition law and record-keeping and audit policies:
Step 1: Identify the purchased products
- Write down the exact name of the product that the buyers need
- Prepare a specification involving the technical dimensions, size, colour, prefered brand (optional)
Step 2: Choose vendors
- Refer to a list of approved suppliers
- Select 2-3 suppliersn who are suitable for the business needs
Step 3: Draft request for quotation
- Include the brief description of the business’ needs
- List the product details involve the quantity, the delivery time and the specification
- Add the buyer’s contact information and response deadline
Step 4: Send RFQ
- Send to supplier’s email about RFQ
- If the buying organization use ERP system, the buyer can upload the RFQ and assign it to the selected suppliers
Step 5: Record Submission
- Log the RFQ and submission date in the procurement tracking sheet or software. If the buying organization use ERP system, all tasks are recorded automatically.
Through 4 stages, the company can make their business strategy in reality. It is crucial to assign specific employees to regularly review and update policies, processes, and procedures in response to changes in corporate strategy and external factors.
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