The Importance of 5 Rights of Procurement

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 Attempting to accelerate the procurement process with outdated tools becomes an issue within the organization’s bottom-line.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.

5 Limitations of Traditional Procurement Process

Organizations normally purchase items from numerous vendors. Procurement experts handle the details of getting these materials purchases at ideal costs. Setting up reliable procurement strategies and techniques empowers a private company to adjust its purchasing system to its long term objectives and goals. 

Procurement managers/ supervisors identify the requirement of what to buy, total buy orders, negotiate delivery times, get items and administrations from providers, survey and acknowledge things and endorse supplier payments.

Managing procurement as an integrated function can draw a positive as well as a negative effect on a business. Procurement can yield different advantages whenever utilized successfully with a decent procedure. But poor procurement processes can lead to cost organizations a billion dollars.

Some limitations of traditional procurement are:

High Costs: There's no competitive offering, which involves sellers contending to offer the products at the most minimal cost to benefit the purchaser. The firm additionally may acquire high search costs when looking for data about the most solid and least expensive suppliers.

Quality Standards: Sourcing from a single most vendor can compromise on the quality standards of the product that is procured. This may increase wastage and in general operational activity costs, leading to a decrease in the organization’s profitability, competitive advantage, and customer loyalty.

Increased Complexity: Generally, the procurement process becomes more complex due to shortage, delays, and supply chain disruption.

Limited Stock Supply: Expecting products from only a single seller can is a risk for an operating business. The supplier organization may neglect to convey the correct amount at the stipulated time, prompting to stock-outs. These stock-outs may prompt loss of sales, lower benefits, and loss of customer goodwill as well as loyalty.

Time Consuming: The most concerning problem faced in the traditional procurement process is that it consumes a lot of time for both the vendors and the buyers. This ultimately affects the productivity of the organization.

The Importance of Augmented Reality on Material Procurement

As innovation keeps on advancing, client encounters are moving ceaselessly from exactly what individuals see to submerging them in the brand experience itself.  One such innovation that is genuinely shaking up the technology scene is the augmented reality (AR) and without any further doubt, AR is obscuring the lines of the real world.

Unlike virtual reality (VR), augmented reality is an overlay of advanced digital content in this present reality condition. Consumers are tending more towards technology and make their purchase decisions on the go.

The impact of augmented reality on material procurement is as follows: 

Improved Customer Experience: AR and VR technology are enhancing and improving the customer/buyer experience. This utilization of augmented reality is a significant leap forward that is focused on the business and commercial industry.

Improved Communication within Departments: With augmented reality, the communication among Procurement, Operations, and Finance to examine the worth and cost drivers of the business could be improved. 

Replace Physical Human Interactions: The augmented reality replaces the need for basic human interactions whether it is a client visit or any business meeting. This helps in saving time of the organization as well as their cost.

Enhance the Procure-to-Pay process: A purchase decision can be made quickly dependent on the survey of the product or finding out about the firm’s services as clients/ buyers can encounter a similar demo. This empowers buyers to check the process worth by means of a digital product catalog.

Digitalizing Supplier Relationship Management: Negotiating with the vendors, bidding in an auction now could be made much more easier after digitalizing.

To make the procurement process proficient and stand ahead of the competitors, these new innovations can possibly reform the manner in which organizations lead certain everyday functions.

Challenges of Traditional Procurement Process

Procurement is tied up with acquiring products and enterprises and the various procurement procedures and tasks connected to this. Despite the many issues and challenges that are mainly associated with traditional procurement, numerous organizations go with the process.

A typical traditional procurement process is carried out with manual work that includes small as well as the repetitive work. These tasks can be anything from getting approvals, discussing bids, making negotiations, etc. Due to all this, it is a very challenging process.

In addition to this, the traditional procurement process is also time-consuming as well as expensive. This is because there are fewer people to manage the given processes. Dealing with the approvals, bills, and other invoices on paper are both inefficient and expensive and obviously inclined to mistakes and loss of administrative work.

Naturally, procurement is a troublesome procedure to control. Therefore, this makes visibility progressively obscured, prompting a greater loss of control and is normally expanded by miscommunication between purchaser organizations and the numerous providers included. 

The key element to beat these difficulties is automating an eProcurement stage. Connecting purchasers and dealers into one single stage. In addition, giving a system to clients to make purchases.  An eProcurement stage improves visibility that it unites all clients, procurement experts, and providers into one stage. 

Having a streamlined procurement process, sourcing and invoicing in a cloud-based stage prompts to controlled visibility over every transaction either locally or globally.

The 5 Important Steps to Effective Procurement

Thinking about the present competition available, it's essential that organizations embrace new ways of thinking, techniques, and procedures while procuring materials and that will make them "best". Here are the 5 most important steps towards an effective procurement in an organization:

Visibility: The first step to effective procurement is to get good spend visibility on what materials the organization is buying and how much is spend across all your purchases. Progress can’t be tapped without spend visibility. 

Control: Users should get to see and control what they see and buy. The way to do this is to set up controls on local buyings with automated technology to ensure the utilization of negotiated rates and invoice bills is efficiently processed. 

Efficiencies: Here the aim is to make the procurement process more efficient by speeding the procuring activity across all aspects of the process. This step ensures the streamlining of the automated procurement process and the supply chain to eliminate errors and waste if any.

Savings: The aim of step 4 is to generate savings for a procurement group.  The traditional supply chain management model relies on manual processing of negotiating with a supplier to provide the lowest pricing. This brings in to implement a good supplier relationship management platform for a smooth flow of supplier management.

Create Value: The last step is about creating value.  For procurement to add value the focus must be on improving financial conditions, improvement of quality, and improving efficiency by utilizing the resources properly and effectively.

The expense of acquiring, and working together, is on a consistent ascent. Organizations have begun to see procurement management as their top need since it takes up an enormous share of their general spend. 

The 6 Agile Principles Relevant to Procurement

At a certain point of time, procurement as a profession will need to become agile. To resist to adapt new change in procurement is a sure way of slipping into irrelevance and disruption in business activity. So it is, therefore, useful to understand the relevant principles and consider how it can identify with your own particular means of business.

The following are the agile principles that are probably very relevant to procurement:

>> Continuous Delivery of value: The initial step of the typical procurement cycle involves speaking with a business partner to comprehend their needs and plan the sourcing of materials accordingly. When this has been done, normal updates to tell the stakeholder how the procedure is going, regardless of whether there will be any delays and watch that their prerequisites haven't changed should be followed.

>> Adapt Changes: For procurement, this implies figuring out how to work in adaptability at each phase of the sourcing cycle.  Adaptable agreements may give you space to oblige your stakeholder’s very last-minute changes. 

>> Fast Delivery: Speed is one of the benefits of agile principles. Compared to other businesses if the procurement process takes unnecessary time for delivery, then it is a matter of concern. 

>> Communication: For an efficient procurement process, the method of communication is a must. By keeping the communication face to face, the errors and miscommunication of ideas are minimized that frequently occur in mails.

>> Simplifying the procurement process: Complex procurement processes can harm relationships with vendors, stakeholders, as well as, end-users. By following agile principles for procurement will show a clear map of how to simplify and fasten the procurement cycle.

>> Agile Principles advance sustainability: In procurement, this includes creating lean production to minimize the wastage during the process, having a just-in-time supply chain flow, etc. Following any work procedure (counting Agile) is a key method to limit wastage of time, ability, and assets. 

E-Procurement Opportunities in India

Electronic Procurement (also known as e-Procurement) is the way of using the internet to make it easier, faster, and less expensive B2B (business-to-business) purchase and sale of supplies and service over the Internet. 

E-procurement is something beyond a system for making purchases on the web. An appropriately executed framework can interface organizations and their business forms legitimately with suppliers while having interaction between them. This incorporates management correspondence, bids, questions and replies, past prices, and various emails sent to numerous participants. 

An efficient e-procurement system enables an organization to its interactions with its most crucial suppliers. E-Procurement provides built-in monitoring tools that help to control costs and guarantee the most extreme vendor performance. The e-procurement system allows managers to confirm pricing, and leverage previous agreements to assure each new price quoted is more competitive than the last price.

With all the advantages that are accomplished from E-procurement, the organization can fundamentally expand ROE (return on equity) and ROI (return on investment).

Other impacts of e-procurement are increased efficiency due to market competition, procurement monitoring, fewer errors due to automated procedures, etc.

E-procurement, for purchasing immediate products and services, is a successful procurement framework, causing a ripple effect in purchasing circles. The specialist organization assumes a pivotal job in offering to source and procuring that fulfill client needs and give an abundant worth expansion to the services that are provided. 

Before, traditional techniques for procurement offered little transparency and lesser fulfillment of negotiation with providers. E-procurement offers the advantages of more transparency, more extensive geographical reach and lesser time of negotiation, easy purchasing, and better supplier evaluating. 

Additionally supported reserve funds can be accomplished through mechanized, simple to-utilize purchasing, managing invoices, and supplier enablement abilities. Realizing item numbers, offer costs and contact focuses can assist organizations with finalizing negotiations while different providers are battling to accumulate their important information.