Purchasing Policy and Environmental Issues Lesson 1:

POLICIES
They are specific guidelines, methods, procedures, rules, forms, and administrative practices
established to support and encourage work toward stated goals. Policies provide a broad
guideline for managers to follow when dealing with important areas of decision making. They
are general statements that explain how managers should attempt to handle routine management
responsibilities. Policies are a set of purposes, principles, and rules of action that guide an
organization. Rules of action refer to standard operating procedures along with any rules and
regulations. Although policies are usually documented in writing, unwritten or informal policies
can also exist. Informal policies are understood over time and eventually become part of an
organization’s culture. The term policy includes all the directives explicit and implied that
designate the aims and ends of an organization and the appropriate means used in their
accomplishment.

Policies define the scope or sphere within which decisions can be taken by the surbodinates in an
organization. They are guidelines developed by an organization to govern its actions. They
define the limits i.e. Do’s and Don’t’s within which decisions must be made. A Policy defines
the area in which decisions are to be made, but does not give the decision.
Characteristics of an effective policy
Policy should be seen as pillars supporting the structure of an organisation. Policy should be
written in such a way that they clear obstacles to staff and enable them to better achieve their full
potential.
a) Effective policies are action-oriented guidelines that provide guidance. They provide enough
detail to direct behavior toward a specific goal or objective but are not so detailed that they
discourage personnel from following the policy.
b) An effective policy is relevant to the functional area of purchasing avoiding trivial or
unimportant issues.
c) An effective policy should be concise stating a position to the point with a minimum number
of words.
d) An effective policy is unambiguous, allowing personnel little doubt as to how to interpret the
policy’s intent and direction. Policies that are subject to different interpretations will, over a
period of time, result in several possible outcomes. This can lead to inconsistent behavior, as
people will simply ignore the policy because it is so difficult to interpret.
e) Effective policies are timely and current, which assumes that they are periodically reviewed
for clarity and conformance. A policy is ineffective or counter-productive if it is confusing,
ignored, or outdated. A policy may be timely and correct but not properly enforced by
management. In this case, it is management’s responsibility to re-educate the workforce
about the policy’s intent.
Policies have a linkage to organisational direction and should be seen as pillars supporting the
structure of an organization.

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Advantages and Disadvantages of Policies

Policies set boundaries, constraints, and limits on the kinds of administrative actions that can be
taken to reward and sanction behavior; they clarify what can and cannot be done in pursuit of an
organization’s objectives.
1. They define and clarify top management objectives: Policy statements are a means for
executive management to communicate its leadership and views. Executive management
should develop a series of high-level policy statements that provide guidance to employees at
all levels.
2. They provide for consistent decision making: one of the primary objectives of a policy is to
ensure that personnel act in a manner consistent with executive or functional management’s
expectations.
3. They ensure standardization of activities: this is achieved by defining the rules and
procedures that apply to all employees.
On the contrary, there are also potential disadvantages to policy development.
1. A policy is often difficult to communicate throughout large organizations.
2. Employees might view policies as a substitute for effective management. Policy statements
are guidelines that outline management’s belief or position on a topic. They are not a set of
how-to instructions designed to provide specific answers for every business decision.
3. Policy development can also restrict innovation and flexibility. Too many policies
accompanied by cumbersome procedures can become an organization’s worst enemy.
PURCHASING POLICIES

Purchasing otherwise referred to as procurement is a functional group which includes a formal

entity on the organizational chart as well as a functional activity which includes buying goods
and services. The purchasing group performs many activities to ensure it delivers maximum
value to the organization. Examples include supplier identification and selection, negotiation
and contracting, buying, supply market research, supplier measurement and improvement, and
purchasing systems development. Purchasing has been referred to as doing “the five rights”:
getting the right quality, in the right quantity, at the right time, for the right price, from the right
source.
Purchasing Policies are generally developed to provide guidance and support to the professional
purchasing and support staff as well as for clarify purchasing management on a subject.
Purchasing management develops policies to provide guidance and support to the professional
purchasing and support staff. These policies are general outlines clarifying purchasing
management’s position on a subject. Although many purchasing policies exist, most fall into one
of five categories:

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1. Policies defining the role of purchasing: This set of policies defines purchasing’s
authority. It usually addresses the objectives of the purchasing function and defines the
responsibilities of the various buying levels. These policies often serve as a general or
broad policy statement from which more detailed or specific policies evolve.
2. Policies defining the conduct of purchasing personnel: These policies outline
management’s commitment to ethical and honest behavior while guiding personnel who are
confronted with difficult situations. Some business practices are technically not illegal but
are potentially unethical or questionable. Because of this, purchasing management must
develop policies that provide guidance in these gray areas. Because purchasing personnel
act as legal agents and representatives, they must uphold the highest standards as defined
by executive policy and the law.
3. Policies defining social and minority business objectives: In the long run it is likely in a
purchaser’s best interest to use its power to support social and minority business objectives.
This may include supporting and developing local sources of supply or awarding business
to qualified minority suppliers. Purchasing’s actions help shape a perception of good
corporate citizenship. Pursuing social objectives may require the development of policies
specifically defining management’s position.
4. Policies defining buyer-seller relationships: The policies that are part of buyer-seller
relationships cover a wide range of issues. The principles that guide relations with
suppliers are often contained in a policy stating that buyer-seller relationships are essential
for economic success. Furthermore, relationships based on mutual trust and respect must
underlie the purchasing effort.
5. Policies defining operational issues: The broadest of the five purchasing policy
categories involves policies that provide guidance for operational issues that confront
buyers during the normal performance of duties: Supplier Responsibility for Defective
Material - This policy outlines supplier responsibility for defective material shipments or
other types of nonperformance. It usually details the various charge-back costs for which
suppliers are liable in the event of nonperformance. Hazardous Materials – Purchasers
must take an active role controlling hazardous waste. Regulations and policies should
outline the proper handling of toxic and hazardous material.

POLICY FORMULATION

Policy formulation is the development of effective and acceptable courses of action for
addressing the policy aim. The actual formulation of policy involves the identification and
analysis of a range of actions that respond to these concerns. Each possible solution is assessed
against a number of factors such as probable effectiveness, potential cost and resources required
for implementation.
Policymakers can only pay attention to a small number of the issues for which they are
responsible. So, they ignore most and promote a few to the top of their agenda. The tendency to

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focus on that one issue, produces the most potential for major policymaking instability and
policy change.
Policy Formulation Processes
Policies facilitate solving recurring problems and guide the implementation of strategy. Policies
can be established at the corporate level and apply to an entire organization at the divisional level
and apply to a single division, or at the functional level and apply to particular operational
activities or departments. Policies, like annual objectives, are especially important in strategy
implementation because they outline an organization’s expectations of its employees and
managers. Policies allow consistency and coordination within and between organizational
departments.
Policy instruments might be formulated either in the negative to prohibit or deter an action, or in
the positive to prescribe or encourage an action. Policies could be used to promote something
that the management deems desirable or restrain or inhibit something undesirable. For instance,
management develop policies that offer rewards for compliance and penalties for non-
compliance. Creating policies for the organization is an essential part of the process of planning.
In order to ensure that the operations of the organization run smoothly, proper policies have to be
formulated by the managers. However, a comprehensive process is involved in creating the most
suitable policies for an organization which involves:-
1. Identifying the policy area: first of all the managers are required to identify the particular
field for which they are going to formulate the policy. At the same time, the managers are
also required to consider the objectives as well as the demands of the organization. For
example, when the managers are formulating policy related with purchasing, they should
keep in mind the expectations and the important areas of purchasing for the organization. In
the same way, the scope of the policy formulated by them depends on the area that such
policy is going to cover. Therefore, it is a very important that first of all the managers
identify the particular area that is going to be covered by the policy that they are going to
create.
2. Identifying various alternative policies: while creating a policy for the organization, the
managers should identify all the policy alternatives that are available to them in a particular
case. The available alternatives can be decided with the help of analyzing the external as well
as internal environment of the organization. While the internal environment of the
organization can help in describing the strengths and weaknesses of the organization, the
external environment can help in identifying the opportunities and threats that are being
faced by the organization. Therefore, the alternative selected by the managers should be
capable of ensuring that the policy formulated by the managers can achieve its objectives.
3. Assessing the alternatives: the various alternatives that are available to the managers need
to be evaluated, keeping in mind the goals of the organization. The managers should evaluate
how these alternatives can contribute towards the achievement of its goals by the
organization. Therefore, the factors like resource requirements, costs and benefits provided
by each alternative have to be carefully examined by the managers. In the same way, while

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creating a policy, the managers should also evaluate the impact of different alternatives on
the environment of the organization.
4. Selecting the most appropriate policy: after the managers have carefully examined all the
available alternatives, they should select the alternative that is most appropriate for their
organization. In this regard, it needs to be noted that selecting a policy for the organization
involves a long-term commitment. Therefore, if the managers feel that a particular alternative
may not be satisfactory, then they should work to find out other alternatives.
5. Testing a policy: before implementing a policy in the organization, the managers should first
implement the policy on a trial basis. This can help the managers in evaluating if the policy
selected by them can achieve the objectives for which it was created. At the same time, when
the policy has been implemented on a trial basis, valuable suggestions may be received from
other members of the organization regarding the policy. These suggestions can help in
introducing the necessary changes in the policy due to which it becomes even more effective.
Therefore, it is very important that the policy implemented in the organization should achieve
the goals due to which it was implemented otherwise the managers should consider the
implementation of a new policy.
6. Policy Implementation: If it has been found during the trial period that the policy will prove
to be successful in achieving its objectives, the policy should be implemented in the
organization. However, it is very important that such a policy should be explained in detail to
all the persons who are responsible for implementing the policy. For this purpose, a detailed
discussion can also be held regarding the probable implications as well as the impact of
different provisions of the policy. Therefore, if the policy has been properly communicated to
the employees, the employees will be aware of the purpose and objective behind the policy
and it will also help in the proper implementation of the policy.
7. Policy Evaluation: At this stage assessment is done to determine the extent to which the
policy was successful or the policy decision was the correct one; if it was implemented
correctly and, if so, had the desired effect. This enables management make considerations of
whether the policy should be continued, modified or discontinued.
Effective formulation means that the policy proposed is regarded as a valid, efficient, and
implementable solution to the issue at hand. If the policy is seen as ineffective or unworkable in
practice, there is no legitimate reason to propose it. Acceptable formulation means that the
proposed course of action is likely to be authorized by the legitimate decision makers, usually
through majority-building in a bargaining process. If the policy is likely to be rejected by the
decision making body, it may be impractical to suggest it. Policies and procedures should be
established, followed, monitored, and reviewed throughout the life of an institution.
POLICY MAKING THEORIES
The following three sets theories describe policymaking process.
1. Bounded rationality (Herbert A Simon – 1947): - Bounded rationality is the idea that in
decision-making, rationality of individuals is limited by the information they have, the

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cognitive limitations of their minds, and the finite amount of time they have to make a
decision. Concept that decision makers (irrespective of their level of intelligence) have to
work under three unavoidable constraints: (1) only limited, often unreliable, information is
available regarding possible alternatives and their consequences, (2) human mind has only
limited capacity to evaluate and process the information that is available, and (3) only a
limited amount of time is available to make a decision. Therefore, even individuals who
intend to make rational choices are bound to make satisficing (rather than maximizing or
optimizing) choices in complex situations. These limits (bounds) on rationality also make it
nearly impossible to draw up contracts that cover every contingency, necessitating reliance
on rules of thumb.
Bounded rationality suggests that policymakers’ ability to make and implement decisions is
more problematic. The ability of policy makers to separate values and facts is questioned.
Policymakers have multiple, often unclear, objectives which are difficult to rank in any
meaningful way. It is unclear if the policy process is so ordered and or if policymakers
sometimes select a solution that already exists to a problem defined for them. Given that
policymaking organizations have limited knowledge and research capabilities; they have to
use major shortcuts to gather a limited amount of information in a limited time. The
policymaking process is not perfection, but something that is good enough. It seeks to have a
satisficing and not an optimal guideline to decision making.
2. Incrementalism (Charles E Lindblom – 1950s): Incrementalism is also used as a synonym
for Gradualism. Incrementalism is a method of working by adding to a policy using many
small steady changes instead of a few extensively planned large jumps. Logical
incrementalism implies that the steps in the process are sensible. Organizations use
simplifying strategies, such as limiting policy analysis to a small number of policy choices
which diverge incrementally from the status quo based on the argument that it is better to
analyse a few issues comprehensively than seek comprehensive coverage of all issues.
3. Punctuated Equilibrium Theory (Frank Baumgartner and Bryan Jones in 1993): The
punctuated equilibrium model of policy change was first presented by Frank Baumgartner
and Bryan Jones in 1993. Punctuated-equilibrium theory seeks to explain a simple
observation: Political processes are generally characterized by stability and incrementalism,
but occasionally they produce large-scale departures from the past. Punctuated equilibrium
is a method of understanding change in complex social systems. The method studies the
evolution of policy change, including the evolution of conflicts. The theory suggests that
most social systems exist in an extended period of stasis, which are later punctuated by
sudden shifts in radical (major) change. Most policy areas are typically characterizes by
stasis (continuity), rather than crisis, but crises do occur. Punctuated equilibrium theory
measures and explains these long periods of policymaking stability, and policy continuity,
disrupted by short but intense periods of instability and change.
Main Considerations in Policy Formulation

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There are certain aspects that have to be kept in mind while formulating policies for the
organization. These are:-
1. Organizational goals: Policies are created with a view to achieve the goals of the
organization. These goals can be described as the targets which have to be achieved by the
organization and in this way; the policies provide the methods through which these goals can
be achieved. Policies should assist in achieving the organizational goals if they are based on
relevant facts and figures and if they have not been created on the basis of guesswork.
2. Proper participation: while framing policies for the organization, it should be made sure that
the members of organization working at different levels should take part in this process. On
the other hand if the policies are created at the highest level of management without being
aware of the views of the persons for whom these policies are being created, it is likely that
the policy may not be successful in achieving the desired results. Therefore, in order to
ensure the successful implementation of policies, participation from all the concerned
members of the organization is required while creating the policies.
3. Reflect business environment: while creating the policies, the internal as well as the external
environment of the organization needs to be considered. The reason is that the situations
prevailing within and outside the organization can provide a realistic basis for these policies.
At the same time, it is also necessary that the policy should be flexible enough so that it can
be adjusted accordingly in case any change takes place in the business environment of the
organization. On the other hand, the rigidity in policies may result in fulfilling the objective
of the policies.
4. Proper communication: it is also very important that the policies should be properly
communicated to the members of the organization at all the levels. On the other hand, if the
persons who have to implement the policies are not aware of these policies, then the purpose
of creating the policies will be defeated. In some cases, the members of the organization may
not properly understand the purpose behind the policies or they may have certain doubts
regarding the policies. Under these circumstances, it becomes the responsibility of the
management to properly communicate these policies so that all the members of the
organization are aware of the purpose behind the policies.
5. Consistency: it is also necessary that the different policies adopted by the organization should
confirm with each other. As a result, there should not be any inconsistency between the
different policies adopted by the organization. In case of such an inconsistency, the policies
could not be adopted properly. Therefore, it is very important to make sure that all the
policies are related with the objectives of the organization and at the same time they should
not provide any conflicting guidelines.
6. Form: a policy should always be in writing. This makes sure that the policy is implemented
properly and correctly. On the other hand, if a policy is not available in writing, there can be
a dispute regarding the purpose of the contents of such a policy. At the same time, it is also

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necessary that a policy should be written in simple language so that it can be easily
understood by all the concerned persons.

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POLICY IMPLEMENTATION
Policy implementation is the stage of the policy cycle where the policy decisions are translated
into action. Policy implementation can be referred to as what develops between the
establishment of an apparent intention on the part of an institution to do something, or to stop
doing something, and the ultimate impact in the world of action. During policy formulation
phase, purchasing managers come up with the most appropriate decisions on how to solve the
problem on the table, and consequently, action taken to enforce the agreed decisions constitute
policy implementation.
In order for policy decisions to be effected, various factors must be in place: funds must be
adequately provided, requisite personnel assigned and, rules of procedure developed and
followed. Policy implementation is also regarded as part of the study of organizational behavior
or management. This is due to the tendency by organizations implementing policies to follow
their organizational values, norms and goals instead of those goals structured in the policy
document.
Policy implementation approaches
Policy implementation is viewed to involve those actions by public and private individuals or
groups that are focused on the realization of objectives set forward in prior policy decisions.
This can be achieved through top-down or bottom-up perspectives.
(i) Top-down perspective to policy implementation
The implementation idea is defined in terms of a relationship to policy as laid down in
official documents, in which policies are visualized to contain both goal and means of
achieving them. The top-down perspective is concerned with two essential issues:
institutional intent and administrative action. This perspective assumes that policies are made
by senior officials and carried out by lower-level officials as contained in the policy
documents. This approach concentrates on policy outputs and investigates the extent to
which the intended objectives have been achieved over time. It emphases on the policy goal
attainment. It is the process of interaction between the setting of goals and actions geared to
achieving them.
In the top-down approach it is assumed that decision makers provide implementers with clear
goals and direction on how policy implementation should be carried out. Unlike the bottom-
up approach which views implementation as a process of interaction and negotiation, taking
place overtime, between those seeking to put policy into effect and those upon whom action
depend.
The degree of goal attainment serves as an indicator of implementation success, and effective
policy implementation corresponds to a match between policy objectives and outcomes. On
the other hand, various critics of the top-down model express that it takes policy outputs as
the starting point of analysis and disregards actions taken earlier in the process, especially
during policy drafting.

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(ii) Bottom-Up Perspective to policy implementation

In this approach the choices, judgements of front line managers, the procedures they set up,
and the strategies they formulate to manage uncertainties and work pressures, effectively
become the administrative policies they carry out. Street level bureaucrats make important
discretionary decisions in their direct contact with the citizens, who tend to define
administrative policies not as crafted in statutes but as delivered to them by street level
managers. Street level bureaucratic factors concerning the policy understanding, knowledge,
attitudes, and values of street level bureaucrats are key influences on their behaviors. For
instance street level bureaucratic factors like technical competence or levels of education
influence street level bureaucrats knowledge of the policy objectives hence, shaping their
attitude towards implementation.
The bottom-up perspectives neglects the influence that policy framers have on the policy,
their eagerness to achieve the stated objectives and the kind of control they wield over lower
level bureaucrats or subordinates. Street level bureaucrats are autonomous in policy making
and sometimes often do not share perspectives and preferences of their superiors. The
discretion and actions of street-level officials is sometimes determined by the uncertain
working environment they find themselves in and the limited resources at their disposal.
Therefore, the choices they make, in some instances become the policies they implement.
Nevertheless, bottom-up perspectives unlike the top-down views, are credited for the
acknowledgement of the significance of lower level bureaucrats who actually carry out day
to day implementation of policies. The bottom-up approach identifies the many policy actors
that affect or are concerned with the problem in question and map out relations between
them. Therefore, it creates consensus among various players involved in finding the solution
to the problem, and analysis of various policies that affect the same problem can be done
whether initially intended or un-intended.
Policy implementation often relies on institutional managers and administrative officers to
establish and manage the necessary actions. It involves different bureaucratic agencies at all
institutional levels each with its own interests, ambitions, and value that affect the
implementation process and shape its outcome. Since implementation is an interaction of
different players with competing interests, it is sometimes referred to as a game.

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