Posted on: 22/05/2025

Draft Procurement Policy by Sahil Garg

A manufacturing company has been experiencing frequent delays in acquiring raw materials, leading to production halts and missed delivery deadlines. The procurement process lacks a standardized policy, causing inefficiencies such as inconsistent supplier selection, lack of transparency in price negotiations, and non-compliance with regulatory standards. As a result, the company is facing increased costs, strained vendor relationships, and customer dissatisfaction. The absence of a clear procurement policy is hindering the company’s operational efficiency and ability to meet market demands. Advise.

Procurement Policy

Object:
The objective of this Raw Material Procurement Policy (“Policy”) is to establish a standardized approach for acquiring raw materials for ABC Limited (“Company”) with an aim to ensure efficient, transparent, and compliant procurement process.

Requirement of material:

The concerned division will raise request for material including the quality, description, quantity and standard of material required. Based on requirement raised by the concerned department, following process will be followed:

1. Issuance of request for proposal: The Company shall issue a request for proposal (“RFP”). The RFP shall contain details about basic requirements of the Company including but not limited to nature of material to be procured, number of equipment, quality and standard of material to be procured. The RFP will be a non-binding document and does not create any legally binding obligations on Company.
2. Receipt for proposal: The interested third-parties will submit their respective proposals for initial scrutiny by Company. Pursuant to initial scrutiny by the Company, a few vendors will be shortlisted depending on the proposal submitted by the interested party, interested party’s standing as per vendor onboarding policy of Company, regulatory standing and reputation of interested third party. 
3. Issuance of request for quotation: Upon identification of third-parties from a group of interested third-party, the Company will issue Request for Quotation (RFQ) to the interested third-parties. The RFQ shall comprise of including but not limited to following details: Details of material to be procured, Minimum standard to be followed, Commercials terms and conditions, Standards to be followed, Requirement of Regulatory compliance, Requirement of financial details of vendor (last three financial year audited balance sheet), Terms and conditions of the contract, Guidelines for submission of financial quotation by bidder, Timelines for submission of bid and tentative timelines for delivery of material
4. Selection of vendor: the vendor will be selected based on criteria set out under the RFQ and upon issuance of Letter of Acceptance.
5. Execution: Company and selected vendor shall enter into appropriate contract.

Exemption from RFP and RFQ process

1. In the event the requirement of material is time sensitive and delay may result in halt of production process, the Company may subject to internal regulations and with approval of executive not below the rank of Chief of Raw Material Procurement and Internal Customer chief, procure material from the supplier/ vendor ready to deliver material immediately in accordance with standards set out by the Company.
2. In the event any material is required to be procured from Original Equipment Manufacturer the above requirement of issuance of RFP and RFQ will not be required.

Supplier Selection and Evaluation:

1. Supplier Search: Initially, potential suppliers are identified based on the Company’s needs, industry reputation, and ability to meet specific criteria (e.g., cost, quality, delivery timelines, and regulatory compliance).
2. Supplier List: A shortlist of suppliers is created based on initial screening through market research, references, and reviews.
3. Preliminary Assessment: A basic assessment is conducted, including supplier’s background checks (financial stability, history, reputation in the market, and any previous issues with other companies). This helps to ensure that the suppliers are capable and reliable.
4. Factory Visits: For high-value or critical suppliers, the company may conduct site visits to audit the supplier’s facilities. This ensures that the supplier’s production methods align with the company’s standards for quality, safety, and operational efficiency.
5. Third-Party Audits: In some cases, third-party audits may be conducted, especially for suppliers in different regions or industries where the company lacks the expertise or resources to perform the audits internally.
6. Clear Terms and Conditions: The Company will ensure that all terms and conditions related to pricing, quality, lead times, and compliance are clearly outlined in the supplier contract. This minimizes the chance of misunderstandings and ensures that both parties have aligned expectations.

Commercial Negotiation:

1. Company follows fair and transparent method of commercial negotiation based on regulatory compliances, financial health, ethical concerns, compliance, quality of material, standards and requirements of Company. 
2. The procedure for commercial negotiation will depend on material to be procured and will be set out in the RFQ and where no RFQ is placed will be specifically communicated to interested supplier/ vendor.
3. A mechanism will be ensured to have competitive pricing and best possible negotiation in place.

Compliance with Regulatory Standards and Ethical Sourcing of material:

1. The procurement process must adhere to all relevant local, regional, and international regulations, including environmental, safety, and ethical standards.
2. Suppliers must provide documentation to demonstrate their compliance with applicable laws and regulations, and the company must regularly audit suppliers to verify this compliance.
3. Environmental Responsibility: The Company will assess whether the supplier follows environmentally sustainable practices, such as minimizing waste, reducing carbon emissions, and complying with environmental regulations. Suppliers engaged in unsustainable practices pose risks to the company’s reputation and long-term viability.
4. Social Responsibility and Labour Practices: The supplier’s labour practices will be reviewed to ensure they adhere to ethical standards such as fair wages, safe working conditions, and the absence of child or forced labour. This is especially important for suppliers operating in regions with less stringent labour laws.
5. Sustainability Audits: The Company may itself or through its authorized third parties may conduct sustainability audits to verify that the supplier operates in line with its environmental and social responsibility goals. This includes evaluating waste management practices, energy consumption, and sourcing of raw materials.
6. Product lifecycle report: The Company may request for product life cycle report of any capital equipment procured. The capital good for the purpose of this Policy means any material that has value of INR 50 Lacs and above.

Timely Procurement and Delivery:

1. Every procurement request will have a clear timeline including factors such as delivery, inspection, return or replacement, warranties. A clear process for ordering raw materials will be implemented to ensure timely delivery and avoid production delays.
2. Time is the essence of material procurement contracts and the same shall be duly communicated to the supplier.
3. Specific penal provisions will be laid out in arrangement with the supplier.

Documentation and Record-Keeping:

1. All procurement activities, including supplier agreements, pricing negotiations, and compliance documents, must be documented and stored securely for auditing purposes.
2. Transparent record-keeping will ensure accountability in the procurement process and facilitate traceability.

Contingency Planning:

1. The Company will implement risk management strategies to address potential disruptions in the supply chain, such as changes in supplier performance, market conditions, or regulatory requirements.
2. A contingency plan will be developed to ensure that alternative suppliers or sources are available in case of delays or emergencies.
3. A supplier/ vendor bank will be created for material frequently procured by the Company.

Feedback and Continuous Improvement:

1. The procurement process will be continuously monitored and reviewed for efficiency and effectiveness. Regular feedbacks will be taken from the vendors, departments, and stakeholders to identify and plug any gaps in the procurement process. The improvements will be implemented wherever possible.

Policy applicability:

• All employees involved in the process of raw material procurement must adhere to this Policy.
• Any deviations from this Policy must be documented, justified, and approved as per following matrix:

Revision to Policy

The Company may make required revisions to the Policy. The Policy version will be updated and the updated copy of the Policy will be available in the “Policies” section of the website of the Company. Review of this policy will be carried at least once in two years.

This article was written by Mr Sahil Garg as part of course activity.