How to Navigate Procurement Compliance

Procurement laws are always changing. While they can be tricky to navigate due to the differences across regions, that’s no excuse to ignore them. Companies that fall short often face hefty fines and damage to their reputation. That’s why businesses today dedicate a significant amount of time and resources to managing compliance. But what does it take to build a compliant procurement system? And how can your organization stay ahead of the constantly evolving rules?

Procurement compliance means adhering to laws and regulations when sourcing goods or services. This way companies operate ethically, while avoiding legal issues, and maintain a fair process which supports long-term success. This includes meeting industry standards like government regulations or ISO certifications. 

Compliance isn’t one-size-fits-all. It varies depending on your industry, the type of suppliers, and the specific goods or services you’re sourcing. Let’s break down the key areas where businesses must stay compliant and its impact. 

In a survey by Delliote, 40% of companies report keeping up with legal and regulatory compliance as a top issue. Legal compliance covers laws that govern procurement at local, national, and international levels. And while it could be challenging following up on rules from anti-bribery laws to data protection standards, businesses must strive to remain compliant or may face costly penalties. For instance, Walmart paid $282 million in 2019 for FCPA violations, demonstrating the serious consequences of failing to adhere to these laws.

Because financial mismanagement can be detrimental to the business’s health, financial compliance ensures that procurement activities follow strict financial reporting standards to avoid mismanagement or fraud. Laws like the Sarbanes-Oxley Act (SOX) require companies to have solid internal controls in place, including for procurement. This way, there is proper approval for invoices and payments.

The world is at a point where nature is starting to revolt against humanity. This makes environmental compliance more important than ever. In fact, 63% of procurement professionals in Gartner’s 2022 report say it’s now a top priority. 

Standards like ISO 14001 help guide environmental management, while the Paris Agreement (COP21) focuses on reducing carbon emissions, affecting industries like manufacturing and transportation. Big companies like Apple and Ikea are leading the way by requiring their suppliers to follow sustainable practices, helping avoid costly penalties along the way.

With over 56% of customers considering ethical practices when purchasing a product, ethical compliance plays a key role in consumer decisions and presents strong business opportunities. Customers want to know if a business operates ethically, upholds fair labor practices, and maintains transparency in supplier selection. Regulations like the UK Modern Slavery Act and the Fair Labor Association (FLA) are made for this purpose. They require companies to disclose their efforts to eliminate modern slavery in their supply chains, while also ensuring fair treatment of workers. Failing to meet ethical standards can lead to public backlash, harm sales, and damage a company’s brand.

As technology advances, it also creates new gaps in security. This is why guidelines like the NIST Cybersecurity Framework and ISO/IEC 27001, which provide standards for safeguarding information, are important. Data breaches caused by weak procurement security cost businesses an average of $4.35 million, according to the Ponemon Institute’s 2022 study. With these frameworks you can manage risks related to cyber threats, fraud, and supply chain security, ensuring that sensitive data remains protected.. 

Since regulations are frequently updated,  you have to stay vigilant. To filter through the bulk of rules, you can join industry groups or subscribe to updates relevant to your industry and business. This will help you monitor these changes and minimize the risk of legal issues. Don’t also forget to carry your team along in impleme-to-date with evolving compliance rules. Team members can also be trained on using procurement toonting regulatory shifts to stay ahead of the competition.

Compliance training is essential for reducing risks and preparing teams. Organizing regular sessions helps everyone stay upls to automate tasks like invoice authorization, purchase approval workflows, and audit management, including compliance checks. This not only reduces the likelihood of compliance errors but also fosters a culture of awareness throughout the team.

When there’s a discrepancy or a need to make informed decisions, you don’t want to be scrambling for data. Keeping comprehensive records for all procurement activities is non-negotiable. It ensures transparency, holds teams accountable. It also allows any questions or issues about procurement decisions to be addressed quickly, minimizing the risks.

Is the supplier meeting compliance standards? Are they following ethical practices? Is there any risk of non-compliance in the supply chain? Conducting regular supplier audits helps you answer these questions. When you perform a supplier audit, you assess the quality and ethical practices of suppliers, reducing the risk of non-compliance. It also helps build long-term, reliable relationships with trusted suppliers.

With the rise of new technology, procurement risks have increased. However, a report by McKinsey found that only 21% of organizations have mature technical risk management processes in place for procurement. This highlights a significant gap in the industry and the need for better infrastructure to manage risks effectively. Businesses must create a plan that keeps the procurement process compliant and continuously improve it during the refining process. Feedback from audits, teams, and new regulations can serve as checks to keep the procurement process up-to-date

Procurement compliance is more than just following a set of rules and regulations, it’s about creating a responsible, transparent, and sustainable business environment. By meeting the required standards, companies can build stronger supply chains, reduce risks, and enhance their reputation. 

It also provides a competitive edge, attracting customers and, in some cases, earning rebates. International Supply Partners (ISP) can help you navigate these complex compliance requirements with ease. With our grounded industry knowledge and global focus, we deliver compliant supplies tailored to your business needs. Contact us today to learn to get started without compromising on quality or budget.