Last edited 25 Aug 2020

Corporate objectives for procurement

Contents

[edit] Introduction

Procurement involves the purchase goods or services. It must be carefully managed to ensure value is obtained, the correct goods or services are purchased, a high level of quality is received, timescales are met and good relationships are maintained between the procurer and the supplier. Establishing a procurement strategy at the outset is key to a successful outcome.

[edit] Five objectives of corporate procurement

One approach to the corporate objectives for purchasing includes five basic principles. These are sometimes referred to the five Rs:

  1. Right quality
  2. Right quantities
  3. Right time
  4. Right price
  5. Right source

[edit] Right quality

The most appropriate items for a project may not always be the most expensive or the highest quality. Suitability is instead based on a combination of factors, including cost, characteristics and application requirements. These factors should be established by personnel who are knowledgeable in the business and technical aspects of the project and are able to verify the quality of items supplied.

[edit] Right quantity

Accurate purchasing can be based on a type of inventory management referred to as economic ordering quantity (EOQ). When calculated properly, the EOQ formula can help an organisation keep the size of an order at a minimum while still maintaining enough inventory to support the activities of the project.

EOQFormula.jpg

[edit] Right time

The timing of purchases should be scheduled so materials are available - in the proper quantities and at the appropriate time. Inventory management methods should be put in place to trigger reordering based on historical data that tracks both material usage rates and necessary lead time (for delivery purposes). Since carrying excess inventory can be costly, it’s important to track this data closely and accurately.

[edit] Right price

The lowest bid isn’t always the most suitable bid for the project. However, every attempt should be made to negotiate a reasonable price based on specifications that have been carefully researched.

[edit] Right source

Selecting the most suitable vendor can not only contribute to a beneficial outcome, it can also help establish a self sustaining procurement strategy. Vendors can serve as partners who inform clients about possible factors - such as supply chain interruptions, pricing changes, additional potential partners and so on - that may have an impact on market conditions linked to the outcome of a project.

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