Procurement Legal Compliance: Key Strategies for Success

So you have great procurement procedures

Cool

But do you ever stop to check if all of these policies are indeed followed?

Yes, we get that on some occasions, your procurement department might feel tempted to jump over the fences and focus only on getting that new product or contract, but with that comes a huge problem: Risks.

Risks that could make you lose money or put you in a bad situation with your clients.

The solution?

Focus on procurement compliance as if your life depended on it

But before getting too dramatic, let’s start with the basics 

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What’s Procurement Compliance?

Procurement compliance is nothing but the certainty that the people in charge of procurement activities are following the established procedures. 

Pretty simple 

The goal of procurement compliance is to make sure that your purchasing activities meet all relevant legal and regulatory requirements, as well as internal policies and procedures.

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You can relate procurement compliance to the following practices:

• Learn where and when you can use procurement software, to improve the pace and effectiveness of your operations. 
• Create and communicate purchasing policies
• Identify procurement risks and opportunities 
• Develop contingency procurement plans 
• Carry out procurement audits 

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Why Procurement Compliance is Important?

Mitigating risks

Here’s the thing, you really don’t have a way out of compliance, once it’s discovered non-compliance can result in financial penalties, legal action, or reputational harm. By following the right standards, you minimize these risks significantly.

Fostering transparency

If you go and search for the best practices in procurement, there’s a high chance that you’ll find transparency as a key value. Adhering to procurement guidelines creates fair and open dealings with suppliers, which builds trust and accountability. Transparent practices prevent fraud and enhance your reputation. Sounds like a really good deal. 

Improving efficiency

Isn’t it to be more efficient what we all want as procurement professionals? Well, working with a structured approach to compliance streamlines your procurement processes, eliminating unnecessary delays and errors. This improves collaboration between teams and supports better supplier relationships.

Encouraging ethical practices

Compliance frameworks encourage sustainable and socially responsible purchasing activities. These practices show your commitment to SDG (Sustainable Development Goals) something that’s increasingly valued by stakeholders and customers alike. 

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Top Procurement Compliance Metrics to Measure

Contract adherence rate

Yep, just like we mentioned above, one of the most important things you can check on is how much your contract with a supplier is respected. This metric tracks how often suppliers and internal teams fulfill the terms of agreements. A high adherence rate indicates a well-managed procurement process.

Policy violation rate

Do you want to truly know if the policies you’ve designed are being followed? Start with this one as it measures instances where internal policies are not followed. By identifying violations, you can pinpoint training gaps or unclear policies and fix the problem before it’s too late. 

Supplier compliance

Suppliers are an essential piece of procurement so it makes sense to evaluate the proportion of suppliers meeting regulatory and contractual requirements. This metric helps you identify risky vendors and improve supplier selection processes.

Audit findings

Analyzes compliance audit results to identify recurring issues or areas of improvement. Regular reviews provide actionable insights into your procurement practices.

Training completion rate

If you have established compliance training for your team, won’t be great to know if the outcome is the one you expected. Keep an eye on the number of employees and suppliers completing compliance-related training. The higher the rate is, the higher the chance of reaching success in training them to follow procurement rules.

Cybersecurity

Breaking news: Cybersecurity threats are a serious risk for procurement, knowing exactly what sort of incidents happen and when can give you a roadmap to develop preventive measures. 

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Best Practices for Procurement Compliance

Develop good policies

But wait, I do have good policies. 

Congrats, but make sure that everyone on your team is aware of that. And, of course, don’t forget to clearly define procurement policies that align with applicable laws and regulations that actually matter to your business. Communicate these effectively to your team. Your policies should be understandable and include specific examples of compliant and non-compliant behaviors.

Use technology

Let’s accept this: If you are truly dedicated to improving your procurement processes, you must rely on the best procurement software to automate compliance checks, monitor purchases, and assess supplier performance. These tools reduce manual errors and save time.

Train your team

As we’ve seen building a sense of awareness in your team regarding compliance is essential so it’s a good idea to invest in regular training to keep employees updated on compliance requirements. Ensure your team understands the “why” behind the rules to encourage adherence.

Conduct regular audits

Schedule periodic audits to identify gaps in compliance and address them proactively. Use the audit results to fine-tune your policies and processes.

Communicate with  suppliers

Some years ago, most companies had supplier communication as one of their biggest pain points and while we want to believe things have improved since 2021, it’s never too late to start working closely with your suppliers to make sure they understand and meet your compliance standards. Building strong supplier relationships is the path to achieving better collaboration.

Establish reporting mechanisms

This is something so simple and yet important that it shouldn’t be overlooked. Create systems for reporting non-compliance issues anonymously and resolving them promptly. Your team and suppliers should feel confident about raising concerns.

Challenges in Procurement Compliance

Changing regulations

Here’s the thing, regulations are becoming more and more important, especially in the ESG field so it’s not a surprise to see laws and regulations changing frequently, which at the end of the day it’s good for the world but it makes tit ough to stay updated. You’ll need to dedicate resources to track and adapt to these changes. Regular updates to your policies and training programs can help.

Complex supply chains

Yes, living in a globalized world is pretty amazing but sometimes operating in a too-connected world can be…well, overwhelming, with global suppliers and extensive networks, learning how to guarantee compliance across your supply chain can be daunting. Proper systems and oversight are critical for managing risk at every level.

Overcoming resource constraints

Small businesses, heads up with this one, depending on the amount of resources you manage your company may find it difficult to allocate sufficient staff or tools for compliance activities. Outsourcing compliance functions or using some software solutions can help mitigate this issue.

Employee acceptance

Introducing new policies or systems often meets resistance, it’s just how some of us tend to behave before something new. Continuous training and inclusive communication are key to overcoming this. Focus on the benefits of compliance to secure acceptance from your team.

Data overload

Having a clear understanding of your data is probably one of the things that aren't negotiable for procurement success.  However, managing by yourself large volumes of procurement data and ensuring accuracy might be a challenge. The solution? Focus on digital tools and expertise. Data analysis tools can help you identify trends and make informed decisions.

Integrating technology

But wasn't technology a good practice? Yes but depending on the software you chose there could be some integration challenges, especially if your existing systems are outdated. Test new systems thoroughly before rolling them out and stick with the solution that has integration capabilities.

Managing sustainability risks

Sustainability is something that every business should pay attention to. As we start seeing the horrific consequences of climate change in real-time, we have to fully consider how we are going to contribute to finding a sustainable future. Businesses aren't the exception and while it's understandable that it could seem an extra chore to keep up with all the processes in your supply chain, the more careful you are, the lower the chance to find yourself trapped in an ethical risk.

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And speaking about risks, is procurement compliance linked to some degree to risk management?

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Good question

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Procurement Compliance and Risk Management

If compliance is all about focusing on what rules your company should follow and risk management works to help you prevent or deal with potential issues…then it makes sense to say they often go hand in hand. Think about it, if you identify risks early, you can tailor your compliance activities to address them effectively. For example, if you’re sourcing from regions with stricter regulations, proactive risk management helps you stay ahead of any problems.

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Developing a combined approach to compliance and risk management has its benefits like being able to make better decisions and enhance operational efficiency. high-risk suppliers and transactions, you can focus your efforts where they’re needed most, reducing exposure to financial and legal risks.

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Future Trends in Procurement Compliance

As regulations and technologies evolve, procurement compliance is also changing. Here are some emerging trends to watch:

Automation and AI

Automation is here to stay and yes you can bet your money that this is going to be great for your business. Automating compliance checks and using AI to analyze supplier risk profiles are becoming standard practices. These tools can identify risks faster and more accurately than manual processes.

Sustainability in procurement

We have said it already, sustainability is and is going to remain one of the hottest topics companies need to focus on.With increased emphasis on ethical sourcing, compliance now includes environmental and social governance standards. Businesses are expected to prioritize suppliers that demonstrate sustainable practices in order to keep their customers satisfied. 

Real-time monitoring

Continuous monitoring tools are providing businesses with immediate insights into compliance performance. These tools reduce the lag between identifying and addressing issues.

Integration of systems

Procurement platforms are increasingly integrated with other business systems, ensuring seamless compliance management. Integration enhances data accuracy and simplifies workflows.

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