Small Business Purchasing Policy

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Purchasing from a warehouse may not be consistent with a company's values.
Purchasing from a warehouse may not be consistent with a company's values. (Image: warehouse image by Niki from Fotolia.com)

A small business purchasing policy must provide guidelines for procuring materials in ways that support a company's bottom line as well as its broader vision. A small business purchasing policy should address company priorities such as convenience and organizational values, but each individual company will give a different degree of weight to the different elements of its purchasing policy.

Price and Value

For many companies, a purchasing policy concerns itself mainly with paying the best possible price for raw materials. The less you pay to create your product, the more you can earn when you sell it. However, low prices often correlate with low quality. Value is a measure of a product's price relative to its quality. Many companies create purchasing policies that aim for the best possible value, which doesn't always involve paying the lowest possible price, but rather a relatively low price for materials of sufficient quality.

Convenience

A company's purchasing policy must take into account the availability of particular materials as well as the convenience of different vendors' ordering and delivery schedules. For example, if you produce electronics, and the vendor who can supply you with the cheapest wire only delivers once a month and requires you to place an order two weeks before he delivers, it may make sense for you to order some of your wire from a more expensive vendor with a shorter order and delivery cycle.

Vendor Relationships

Companies build relationships over time with particular vendors who understand their needs and provide quality service. For some businesses, loyalty to vendors who have provided extraordinary service in the past may trump considerations of price and sometimes even considerations of value. For example, if a vendor graciously allowed your company to delay payment during a period of extreme cash flow difficulties, you may be inclined to continue supporting this vendor even after you have found a cheaper, more convenient alternative.

Ethics

Ethical considerations play a considerable role in the purchasing policies of some companies. Many inexpensive products are produced using materials and processes that cause environmental damage and labor that is unfairly paid. Businesses that incorporate environmental and humanitarian values into their overall mission will be especially likely to make purchasing decisions on the basis of whether available options correspond with company values. These companies are usually willing to pay additional premiums for products produced by like-minded suppliers.

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