Intelligent procurement practices are vital to the success of any organization. They drive operational efficiencies, ensure spend accountability, and help to reduce overall costs.
For nonprofits, achieving success in these areas is the difference between smart spend management and catastrophic failure. Yet, despite this, many nonprofits still rely on manual and outdated procurement processes that impede charitable growth.
Transforming your nonprofit’s spend processes from sedated to celebrated is, of course, easier said than done. Firstly, it requires time to evaluate your current systems so you can understand where you can make improvements. Secondly, it often calls for new technologies that cost money and are cumbersome to implement. And lastly, overhauling of your existing processes often results in an impactful culture shift throughout the organization.
But, the rewards far outweigh the consequences, and good procurement processes are something every organization should strive for.
In this blog, we’ll walk you through the basics of smart purchasing for your nonprofit.
Ready? Good. Here goes…
A crash course on nonprofits
While many organizations prioritize high profitability above everything else, nonprofits prioritize community development. They’re often funded by donors, corporate sponsors, philanthropists, and other members of the community.
Volunteer organizations, labor unions, schools, and churches are all examples of organizations who put community development and social benefit above profit. But not all of these organizations are publicly funded.
Within the sphere of nonprofits, there are two distinct types: public and private. Public nonprofits receive money from the general public through fundraising and other activities. Private nonprofits receive investments from private donors.
Both public and private nonprofits can also receive government grants and tax subsidies.
A nonprofit organization does exactly what it says on the tin: it operates not for profit.
Purchasing for nonprofits: a checklist
Okay, now that we’ve cleared up the obvious, let’s dive into setting up smart procurement practices at your nonprofit.
Here’s our seven-step checklist to follow.
1. Assign purchasing roles to team members
If you’re a smaller nonprofit, you might not have a dedicated purchasing team, and that’s okay. If this is the case, start by assigning the necessary purchasing responsibilities to specific team members across your organization. By doing this, individuals at every level can begin owning a piece of the purchasing puzzle, and you can begin building accountability.
2. Design a hierarchy of approval
Next, you’ll want to build a hierarchy of approval to better manage individual spend requests. Of course, this will be determined by the size and scope of your nonprofit’s purchasing power. If you’re making large purchases regularly, make sure there are multiple people in your approval chain for these spend requests. That way you can develop the necessary checks and balances that drive spend visibility and build accountability.
An easy way to do this is to set approval thresholds at varying levels. For instance:
- A purchase of $150 or less requires no approval
- Purchases of $500 or less require only one approver
- A purchase of $5,000 or less requires two approvals
3. Develop your spend policy
Any nonprofit that receives outside funding is subject to strict regulatory and compliance procedures. After all, you’re tasked with spending money that isn’t your own on things that will directly benefit society.
As part of this regulation, you require an in-depth spend policy that outlines things like:
- Your micro-purchase method: This outlines the purchase of supplies or services using simplified acquisition procedures, the aggregate amount of which does not exceed the micro-purchase threshold.
- Small purchase procedures: This outlines the procedures for relatively simple and informal purchases.
- Sealed bid method: The outlines the method for discrete fair division, allowing for the division of items that cannot be split into smaller pieces, like a house or a car.
- Competitive proposal method: This outlines the purchasing method where all proposals are reviewed at a predetermined time and place and a contract is awarded in accordance with the terms of a solicitation.
- Non-competitive proposal method: This outlines the method where the buyer either selects one organization to provide goods and services to, or invites certain suppliers to bid.
On top of these requirements, your nonprofit spend policy should also document how you manage and maintain spend internally. Outline things like your approval hierarchy, type of spend culture, how you manage expenses, and so on.
4. Develop criteria for your vendors
All nonprofits should establish a strict set of criteria their vendors must adhere to. For instance, nonprofit vendors should adequately address environmental concerns that come with supply and demand. Another example is manufacturing standards – those manufacturing goods on behalf of a nonprofit should do so in an ethical way.
Our recommendation here? Canvas the market and shop around. The more information you have about potential vendors, the better.
5. Plan before you purchase
Before you or anyone at your nonprofit commits to a purchase, ensure that you don’t already have the resources on hand. This seems obvious, but it’s common to purchase something quickly, only to realize you already have that exact thing.
Smart spending is conscious spending, so do your homework, understand the exact cost, weigh up the time it’ll take to arrive, and then (and only then) make an informed spending decision.
6. Document each and every transaction
For every transaction that your nonprofit makes, be sure that you log and store your paperwork. That means saving your purchase order, document receipts, keeping your invoices, and attaching any other complementary documents so you can refer back to them at a moment’s notice.
7. Manage your purchase orders responsibly
It’s important to ensure your vendors fulfill the specific specifications in your purchase orders. Only then can you ensure you’re spending as wisely as possible and receiving a maximum return.
If you fall short of this management process, that’s okay. Just review, learn, and improve for next time. In fact, we recommend you review all your purchases on a monthly or quarterly basis. This way you can understand what’s working, where you’re falling short, and how you can improve (and save money) for next time around.
Perfect procurement requires trustworthy technology
The days of paper pushing are now behind us. As a consequence of the forced retreat into our own homes through 2020, almost every nonprofit had to find a technological solution to a once paper-based procurement process.
As summed up by Orly Davis, the Director of Operations at The Donald Berman Chai Lifeline Canada charity:
“No one was working in the office and people and vendors still needed to get paid.”
That’s life. At least, that’s what Orly Davis says. They were riding high in February 2020, and much like the rest of the world, their nonprofit had to quickly adapt in order to remain impactful.
For organizations everywhere, automated technologies have the potential to help procurement teams attain 15 to 25 percent savings on addressable spend.
With the right spend management solution, nonprofits can ease the burden of intricate purchasing workflows. They can also begin to automate rigorous spend approval processes and drive organization-wide spend accountability.
Ultimately, the right technology results in more managed spend and less wastage, which helps drive a greater social impact. And after all, isn’t that what it’s all about?
Editor's note Original publish date: 11 September 2014 Original author: Sean Kolenko We've since updated and republished this blog post with new content.