How CFOs Can Fix Broken Purchasing Policies Fast

Most CFOs of growing companies struggle with compliance to any sort of purchasing policies. They will have a procurement or a purchasing policy in place, but people are not following it. Or the CFO and the team have to really micromanage every purchase to ensure that policy is being followed. And none of these approaches cannot scale. Right? You can't micromanage and you can't scale a business without a policy. So in this video I'm going to share three simple tips that can ensure that people are following your procurement policy. And you can enforce compliance, but without policing them. But make sure that they actually understand the value out of it. Right. And in the end, I'll share one mistake that you must avoid when setting up policies for procurement. Now, if you're joining me for the first time, welcome. My name is Sachin Sharma. I am the founder of Procure Desk. I'm where we help growing companies control spending through automation of procurement and AP processes. So let's jump right in. Number one is make compliance faster than breaking rules. So what do I mean by that? When you implement a procurement policy, you're thinking of compliance and so on, but when you implement that compliance, the process could get longer. So for example, if every purchase needs three approvals, obviously you have a very long process. So what is going happen when somebody needs something now, right, and they're just going to break the process, they're just going to, you know, basically ask for forgiveness later and just go make the purchase. And there are two simple steps you can do. Number one is understand how purchasing is working and set up approvals accordingly. So do you need to send everything for approval? Or maybe we just give more autonomy to people, maybe implement a system that gives you better visibility so you know that you're under control but you're not slowing down the process. Number two is track the cycle time. So if you're not tracking the cycle time, it just becomes very difficult to know whether the process is working or not. Right. So look for the friction points, remove them and make compliance faster. Right. Second is fix the root cause. So why are people using credit cards? Why are people not involving your procurement team for a new vendor setup or anything else going on? They probably using non preferred vendors, whatever is your procurement policy. So everything where people are not following the process, it could be either a, the process has a lot of friction in it. And you will hear me saying that word again and again because that's what it's all about, it's reducing the friction. And number two is they're probably not Aware of the policy. Right. So you got to look at every instance of non compliance and see why this could be happening and what we can do to fix the issue that is driving non compliance rather than just reprimanding people. That doesn't work. Or scale. Number three is build understanding with your employees. So a lot of times CFOs roll policies out with the intent of controlling cost. That's kind of number one. Right. It's like adult supervision when the company's growing too fast. The problem is they spend time explaining the policy, but not the intent of the policy. So what happens when people follow the policy? For example, okay, we can get better pricing as a company. We can reduce overall expenses so we can do more. We can grow faster if it has impact on profitability and hence their bonus. That is where you kind of want to focus on. So focus on incentives they care about and how the policy impacts that. If you can find that connection, that is the best way to explain why the policy is in place. Right. So those are three simple steps. Now let's talk about the bonus tip. You won't make exception harder than kind of, you know, like you should be in a place where exception generally doesn't happen. So a very common problem with any sort of process is emergency purchase. And most policies don't have a process for emergency purchase. Like, I need something now. Okay, what is the process for that? Now just go and create a requisition and that needs approval. Now you gotta go follow up, follow with multiple people, get the approval done and so on. Rather define what an emergency is. And maybe you want to create an exception upfront. So rather than making, you know, letting it be dependent on people to figure out what to do in an exception, define those upfront so that nobody can just kind of go break the policy. It is an exception is part of the policy. So that way you have defined it, you have communicated it, and so on. And that ensures compliance. So just to recap how you can implement procurement policy without being the policy police, number one is make compliance faster. Number two is fix the root cause. And number three is build understanding with your employee base. 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