That pursuit, of course, is easier said than done – we’ve written about how intricate that goal can be here. Every organization must assess the maturity of their procurement, and then proceed to establish a set of best practices based on that maturity. No two organizations are the same, so assessing the state of one’s own procurement and purchasing departments is critical.
Although good procurement processes are something all organizations should strive for, we often discuss procurement and purchasing as processes of for-profit enterprises.
That is, of course, only half the story: non-profit organizations must too – if not more so – establish sound procurement and purchasing policies because they often depend on government grants and tax subsidies. Loose spending of the public purse is never a good idea (although one that is too often done, though often by public bodies, not just non-profits).
A Crash Course on Non-Profits
According to writer Amanda McMullen, a non-profit organization is “a company created for purposes other than earning a profit.”
Examples of non-profit organizations are: volunteer organizations, labor unions, schools and churches.
Within that realm, there are two distinct types of non-profit organizations: public and private. Public non-profits are organizations that receive its money from the general public, as well through government grants and tax breaks.
Private non-profits are organizations that receive most of its funding from dedicated donors, or income from investments. Private non-profits may still receive grant money and tax subsidies as well.
A Purchasing for Non-Profits Checklist
So, what should a procurement/purchasing process in the non-profit world look like?
Here’s a great list, courtesy of the Province of Ontario (the list is designed specifically for “publicly funded organizations” in the province, but we think the steps are a great reference for all non-profits). This list can help improve purchasing for non-profit organizations.
- Establish internal controls – assign responsibilities and design a hierarchy for all approvals. This step will be decided by the size and scope of the procurement function in question.
- Plan before purchasing – decide whether all purchases must be made, or whether some can be fulfilled with resources already on hand. For all the goods that must be purchased, know the exact price (with tax) and how long it will take to receive them.
- Develop criteria – this is in respect to vendors. All non-profits should establish a strict set of criteria their vendors must adhere to (i.e. manufacturing standards, environmental concerns etc.).
- Canvas the market – shop around! Gather as much information about potential vendors as possible, before procuring any goods.
- Purchase – ensure that your procurement approval process (see step 1) reflects the purchases, in particular, when purchasing expensive goods. For example, for goods more than a certain dollar value, make sure you must seek approval from your board of directors.
- Document the transaction – create a purchase order, complete with the necessary information (i.e. price, product specifications, date etc.).
- Keep records – keep all records of purchasing for a recommended seven years. This is critical for audits and financial planning.
- Manage contracts responsibly – ensure the specifications in your purchase order (or contracts) are fulfilled by your vendors.
- Review and improve – review all of your purchases on a monthly, quarterly, bi-annual or annual basis. Learn from the purchases you made. What is working? What isn’t? Make improvements where necessary.
How can e-procurement help?
E-procurement solutions can help ease the burden of this intricate (although necessary) process. For example, an e-procurement solution will help a non-profit establish a good approval process (quality e-procurement solutions will be designed with approval routing in mind), draft purchase orders, as well as document and save all the transactions (all transactions are saved in the system).
Finally, the ability to save all purchases will allow those in a non-profit organization to easily review all past purchases and, subsequently, forecast what purchasing in the future will look like. Also, that level of visibility will allow the appropriate people in the non-profit to make the necessary adjustments, where applicable. Can any money be saved? If so, where? Should contracts be renegotiated? For a non-profit, the chance to save money is important.