Procurement incapabilities and aspects cost the organization a huge price either in the form of delayed purchases or any transaction dispute. Attempting to accelerate the procurement process with outdated tools becomes an issue within the organization’s bottom-line.
Here the primary task of the procurement process is to give the right inputs for the organization’s process. The five rights of procurement include:
Right Quantity
Right Quality
Right Place
Right Time
Right Price
The procurement Rs can be also termed as key performance variables or procurement factors. The importance of achieving the 5 Rs are as follows:
Right Quantity: The term right quantity refers to procuring a sufficient amount of products to meet the demand and lessen the excess stock by forecasting demand, inventory management, etc. Insufficient quantity can lead to stock-outs, will lose credibility in sales as well as goodwill, etc.
Right Quality: Poor quality of product will only lead to incurring higher costs, loss of goodwill, and damaged reputation. Right product quality has aspects like reliability, quality conformance, safety, etc. It should be suited to the needs of internal as well as external stakeholders.
Right Place: Right place refers to the place of delivery point. The arrival of products in a safe and secure way can be done by distribution planning, packaging, transportation, etc. Unhandled goods or goods delivered at the wrong place will cause unnecessary damage to goods and also add up in the transportation cost.
Right Price: Right pricing is minimizing the procurement cost in order to maximize the profit. This can be done by continual price discovery, supplier price analysis, competitive pricing and, future negotiations. Without achieving the right pricing, profits will decline while the material and supply costs will rise.
Right Time: Securing the delivery of goods at the delivery point at the stipulated timeline can be done by demand and supplier management.
Therefore, it is must that a supplier should follow the 5 R approach for the smooth flow of the procurement process within the organization.
