Research-backed insights on why procurement policies fail and how to transform them into valuable business enablers

Imagine Sarah, a bright and eager new employee, tasked with procuring essential software for her team. She vaguely recalls hearing something during her onboarding about a company-wide procurement policy, a set of guidelines meant to streamline purchasing and ensure responsible spending. However, a frantic search through the company intranet yields nothing. She asks her colleagues for guidance, only to receive conflicting advice and outdated procedures. Ultimately, pressed for time, Sarah resorts to using her personal credit card, a decision that will inevitably lead to an exception approval and a headache for the finance department.

This scenario, unfortunately, is not an isolated incident. It vividly illustrates a common premise within many organizations: procurement policies are often either non-existent, languishing in obscure digital or physical archives, or so convoluted that they are effectively ignored.

The Data Speaks: Research-Backed Evidence of Procurement Policy Problems

The notion that many companies lack effective procurement policies, or struggle with their implementation, is supported by research from leading consultancies and analysts. While direct statistics on the complete absence of procurement policies across all organizations are elusive, the emphasis placed on policy standardization by high-performing procurement teams suggests a significant gap in adoption for others.

“The standardization of policies, processes, systems, and data is a top strategy employed by the most successful procurement organizations.” — Deloitte Global CPO Survey

According to McKinsey research, despite accounting for 50 to 80 percent of a company’s cost base, external spend often receives less attention than sales or productivity improvement efforts. This reveals a critical disconnect between procurement’s financial importance and the organizational focus it receives. McKinsey notes that introducing new “currencies of procurement” beyond traditional cost savings can help position procurement as a strategic function rather than just a policy enforcer.

Key Research Findings Supporting the Premise

The Hackett Group’s benchmarking research has identified that high-performing or “Digital World Class” procurement organizations experience less savings loss due to maverick spending compared to their peers. Their research shows these organizations achieve a significantly higher ROI, with a 9X payback on investment in procurement processes, though even these leading organizations face challenges as cost reductions level out.

Root Causes: Why Well-Intentioned Procurement Policies Fail

Several interconnected factors contribute to the scenario where well-intentioned procurement policies fail to achieve their intended purpose:

1. Lack of Awareness and Effective Communication

A primary reason is the simple lack of awareness and effective communication. According to McKinsey, spending is often fragmented among multiple locations, business units, and categories, making it hard to identify and capture enterprise-wide savings opportunities, let alone enforce policies consistently. If employees are not informed about the policies, their importance, or how to access them, adherence becomes virtually impossible.

2. Overly Complex Systems and Processes

Another significant contributor is the presence of overly complex systems and processes. Gartner research on procurement indicates that complex and non-intuitive platforms discourage employees from following proper procurement procedures. According to Gartner, many companies lack competitive and dynamic supplier risk management capabilities, and a reactive approach to vulnerabilities means that emerging risks and opportunities often get missed.

3. Inadequate Technology and Poor User Experience

Inadequate technology adoption and a poor user experience further exacerbate the problem. McKinsey highlights challenges in digital procurement transformation, including digital fragmentation and a lack of integration with broader enterprise digital strategies. Procurement technologies need to be user-friendly and integrated with existing systems to be effective in supporting policy compliance.

“The procurement function must shift from being seen as an enforcer to an enabler through customer-centric technology design.” — Forrester Research

4. Conflicting Organizational Priorities

Conflicting priorities within the organization and a lack of consistent support for procurement policies also play a role. McKinsey research identifies “conflicting priorities” as a significant barrier to improvement in procurement effectiveness. Without clear alignment and commitment across all levels of the organization, even well-defined procurement policies can be undermined by competing business objectives.

5. Talent and Skills Gaps

Finally, talent and skills gaps within procurement teams can contribute to the ineffectiveness of policies. McKinsey identifies talent acquisition and retention as a major internal risk, with a significant portion of CPOs expressing concerns about their teams lacking the necessary skills to deliver their procurement strategies. A lack of skilled procurement professionals can result in poorly designed or implemented policies and systems.

The ROI of Effective Procurement Policies: Quantifying the Cost of Inaction

The hidden consequences of neglecting procurement policies and allowing them to fall into disuse can be significant and far-reaching for an organization. 

1. Financial Impact of Maverick Spending

One of the most direct costs is the increase in maverick spending. The Hackett Group consistently identifies maverick spending as a major concern for procurement organizations, with some studies estimating that as much as 29% of indirect spend occurs off-contract. This uncontrolled spending undermines procurement’s efforts to secure favorable pricing and terms, directly impacting the bottom line.

2. Lost Strategic Opportunities

Beyond immediate cost implications, ineffective policies and systems also lead to lost savings and missed opportunities for strategic advantage. McKinsey research shows that procurement teams with access to big data and advanced analytics can generate significant performance improvements, with CPOs expecting a 40% increase in annual savings, 30-50% less time spent on transactional sourcing, and a 50% reduction in value leakage.

“Digital World Class procurement organizations achieve nearly double the spend cost reduction savings compared to their peers.” — The Hackett Group

3. Operational Inefficiencies and Delays

Operational inefficiencies and delays are another costly consequence of ineffective procurement policies. According to McKinsey, slow cycle times and cumbersome procedures can frustrate business stakeholders and hinder overall organizational agility. When employees struggle to navigate complex or outdated procurement processes, it leads to delays in acquiring necessary goods and services, potentially impacting project timelines and overall business performance.

4. Risk and Compliance Exposure

Furthermore, a lack of adherence to procurement policies can significantly increase an organization’s exposure to risk and compliance issues. Gartner emphasizes the heightened risk when processes are not well-controlled and policies are not enforced. Maverick spending, in particular, can lead to purchases from unapproved vendors, potentially exposing the organization to financial, legal, and reputational risks associated with unethical or non-compliant suppliers.

5. Damaged Supplier Relationships

Finally, neglecting procurement policies can damage an organization’s relationships with its key suppliers. As McKinsey points out, in the increasingly complex global supply chain environment, strong supplier relationships become more critical than ever. Maverick spend can undermine carefully cultivated supplier relationships by diverting business away from preferred partners.

Procurement Policy Transformation: A Strategic Framework for Success

To move procurement policies from being a well-intentioned but ineffective “ghost in the machine” to a robust framework that drives positive outcomes, organizations need to adopt a more modern and user-centric approach.

Spotlight: How AI-Powered Systems Drive Policy Compliance

Leading-edge procurement solutions are now leveraging AI to address the fundamental challenges of policy compliance and user adoption. Zycus’ Merlin AI-powered Intake Management solution exemplifies this modern approach by embedding policy compliance directly into the procurement workflow.

The solution features a conversational AI interface integrated with Microsoft Teams, providing users with a familiar environment they already use daily. This integration is particularly effective because it meets employees where they already work rather than forcing them to learn yet another system. The Microsoft Teams-based UI drives significantly higher adoption rates, with research showing up to 70% faster request processing and approvals compared to traditional procurement interfaces.

What sets this solution apart is how it embeds policy compliance as a core feature rather than an afterthought. The system uses AI to guide users toward compliant purchasing decisions from the very beginning of the procurement process. When an employee initiates a purchase request, the conversational AI interface walks them through the appropriate workflows based on the organization’s specific procurement requirements. The system can automatically route requests to approved catalog vendors, suggest alternatives for non-catalog items, or initiate the process to onboard new suppliers when necessary.

This approach transforms procurement policies from static documents that employees must remember to reference into dynamic, interactive guides that proactively ensure compliance. Organizations can customize embedded workflows to reflect their specific compliance requirements and define policy brackets for suppliers outside catalogs, tailoring approval flows to meet diverse policy needs.

Real-time spend tracking and monitoring capabilities further enhance compliance by providing visibility into spending patterns and flagging potential policy violations before they occur. This proactive approach prevents maverick spending and ensures adherence to organizational policies without creating friction for end users.

Such AI-powered solutions demonstrate how modern technology can resolve the fundamental tension between rigorous policy compliance and user-friendly experiences. By making compliance intuitive and embedding it directly into familiar workflows, organizations can transform their procurement policies from obstacles to be avoided into enablers of efficient, compliant purchasing.

1. Prioritize User Experience

A critical first step is to focus on user experience. McKinsey research emphasizes the evolution of procurement from a purely control-oriented function to one that acts as an enabler for the business by prioritizing customer-centricity. Organizations should design their procurement policies and supporting systems with the end-user in mind, ensuring that they are intuitive, easy to navigate, and provide a seamless purchasing experience.

2. Embrace Technology Intelligently

Organizations must embrace technology intelligently. McKinsey underscores the increasing reliance on advanced technologies like AI and digital tools to extract valuable data-driven insights in procurement. BCG research finds that higher investments in AI as a share of all digital investments generate increasingly higher returns if these investments are intended to achieve specific business outcomes, such as improved inventory management.

Case Study: Global Manufacturing Company Transformation

A global manufacturing company with operations in 35 countries struggled with procurement policy compliance rates below 60%. After implementing a user-centric procurement platform with AI-powered guided buying capabilities, compliance rates increased to 92% within six months, resulting in $3.7 million in previously lost savings being captured.

Read the full success story here

3. Communicate Effectively and Train Consistently

Prioritizing communication and training is another essential element in reviving dormant procurement policies. According to McKinsey, procurement departments can develop robust strategic buying teams and deploy fully autonomous sourcing bots for standardized spend areas, but this requires clear communication and consistent training across the organization.

Download Whitepaper: Spend Data Classification: Making sense of Data

4. Simplify and Standardize Processes

To reduce user frustration and increase compliance, organizations should also simplify and standardize processes. McKinsey highlights the ongoing trend towards increased centralization and standardization of procurement policies and processes among leading companies. By streamlining approval workflows, eliminating unnecessary steps, and standardizing procedures across different departments and business units, organizations can make it easier for employees to follow procurement policies consistently.

5. Review and Adapt Regularly

Given the dynamic nature of the business environment, it is crucial to establish a process for the regular review and adaptation of procurement policies. McKinsey notes that as the world becomes increasingly multipolar, procurement leaders must shift focus from cost improvement alone toward resiliency and assistance to businesses adapting to volatile market conditions. Procurement policies should not be static documents but rather living guidelines that are periodically reviewed and updated.

6. Measure Compliance and Provide Feedback

Organizations should measure compliance and provide feedback. The Hackett Group’s benchmarking services emphasize the importance of establishing metrics to measure procurement compliance and implementing controls to enforce policies. By implementing mechanisms to track policy adherence and providing regular feedback to employees on their compliance levels, organizations can reinforce desired behaviors and identify areas where further education or process adjustments may be needed.

Procurement Policy Effectiveness Assessment Tool

How does your organization’s procurement policy stack up? Use this quick assessment to identify areas for improvement:

• Accessibility: Can employees easily locate procurement policies when needed?
• Clarity: Are policies written in clear, jargon-free language that all employees can understand?
• User Experience: Is your procurement system intuitive and easy to navigate?
• Training: Do employees receive regular training on procurement procedures?
• Technology Support: Are policies supported by appropriate digital tools?
• Executive Support: Do leaders consistently reinforce the importance of following procurement procedures?
• Review Process: Are policies regularly reviewed and updated to reflect changing business needs?
• Compliance Measurement: Do you track and report on policy compliance rates?

Score each area from 1 (significant improvement needed) to 5 (excellent). Areas scoring below 3 represent immediate improvement opportunities.

Conclusion: From Phantom to Framework – Building a Procurement Policy That Works

The data and insights gathered from industry leaders and research organizations paint a clear picture: while many companies have procurement policies in place, a significant number struggle with low awareness, overly complex systems, and high rates of exception approvals. These issues are often rooted in a lack of effective communication, cumbersome processes, inadequate technology adoption, conflicting priorities, and skills gaps within procurement teams.

However, the challenges are not insurmountable. By reimagining procurement policies with a focus on user experience, embracing technology intelligently, prioritizing communication and training, simplifying and standardizing processes, ensuring regular review and adaptation, and actively measuring compliance, organizations can transform their procurement policies from being a neglected “phantom” to a robust framework that drives real business value.

Effective procurement policies, when implemented thoughtfully and supported by the right tools and strategies, are not just about control; they are about enabling efficient, transparent, and value-driven purchasing that contributes directly to an organization’s overall success and sustainability.

Ready to transform your procurement policies from gathering dust to driving value? Contact our procurement transformation specialists for a personalized assessment and action plan.

Related Reads:

1. 1. Revolutionizing Procurement with Digital Transformation
   2. Creating Agile Supply Chain -The role of technology
   3. Procurement Efficiency Metrics & AI: A Strategic Guide
   4. The Future of AI in Procurement
   5. Addressing Procurement Policy Compliance, Workflow Efficiency, and Strategic Value Creation with GenAI
   6. Cutting-Edge Procurement Best Practices for Tomorrow’s Industry Leaders
   7. From Friction to Flow: How to Streamline Procurement Requests with Cutting-Edge AI
   8. Smart AI Procurement Intake Tools for Success
   9. Revolutionizing Procurement Requests and Intake Management Automation: Empowering Users in the Procurement Ecosystem
   10. The Evolution of Intake Management: From Bolt-On to Built-In
   11. White paper: The New Age of Procurement- GenAI Powered Interactive Workflows
   12. White paper: Procurement Automation- Overcoming dearth of supplier adoption