The questions on this topic tend to be one of the following:
- Analyse the added value of Five Rights
- Explain the benefits of Five Rights
- Describe the actions that could be done to achieve the Five Rights in the given scenario.
When writing about the Five Rights, you are expected to describe the following:
- The definition of the right
- Benefits of achieving the right
- The losses (or risks) if the organisation doesn’t achieve the right
- How procurement department can achieve the right.
Right quality means that the acquired product/service is fit for purpose. In other words, the product/service effectively solve the problem that the organisation expects it to solve. For example, you are procurement specialist at a toothbrush manufacturer. Your marketing team reports that the customers prefer softer brittles. To push sales and expand the market share, you need to source the soft brittles from the supplier. If the supplier delivers the product that meets such requirements, they are giving you the right quality.
Achieving right quality can bring tremendous benefits to the buyer:
- The internal as well as external customers will be satisfied with the solution
- Your company gains competitive advantages due to higher product quality
- Your organisation won’t incur the unnecessary costs.
On the other hand, not achieving right quality can lead to the following consequences:
- Your organisation incurs more costs to reorder the product and dispose the unfit ones
- Customers become dissatisfied
- Your reputation can be damaged due to low quality
To achieve the right quality, procurement department can employ the following approaches:
- Develop the right type of specification and involve the participation from relevant stakeholders (i.e. the end-user, technical department, suppliers,…)
- Check the quality of purchased product/service when it is delivered to the buyer.
Right quantity means that the buying organisation purchase the correct quantity of product or service, not too much or too little.
Achieving the right quantity will enable the buying organisation to reduce costs and meeting the requirements on time.
If the organisation purchase the wrong quantity, the following consequences may happen:
- It incurs more costs to order more inventories (in case of insufficiency) or more costs to store the extra inventories (in case of overabundance)
- The excess stock may become obsolete or redundant, which reduces its value dramatically
- When the stock is insufficient, the production line may stop, which leads to loss of customers and orders.
To purchase the right quantity, the following methods can be done:
- Using software (MRP, MRP II, ERP) to manage the inventories and demand
- Forecasting the demand methodologically
- Adopting JIT approach where applicable
- Storing more safety stock to prevent stockout
Right price is not about purchasing the product or service at the lowest price, but about bringing the value for money to the organisation. The acquired product or service brings the value that matches its costs.
Achieving the right price will optimise the operating costs in the long run. Right price is not only about the purchase price, but also about other elements that form the total cost of ownership.
When the right price is not achieved, as a result, the organisation incurs more costs, and maybe running at a loss.
To achieve the right price, the following actions can be done:
- Defining the correct specification so that it is not over-specified, which lead to unnecessary costs
- Before any purchase, the procurement department should analyse the market, the costs and prices of the solution
- The buyer should maximise the use of competitive tendering and e-tendering when purchasing high value items
- The buyer should pool the needs when applicable to achieve economy of scale
- Negotiation should be undertaken methodologically.
- Also, in international trade, the buyer should pay attention to currency exchange fluctuation and relevant Incoterms in the contract.
Right time and right place are pretty simple. It means that the product or service should be delivered at the correct time and location.
Achieving these rights will enable the buying organisation to operate smoothly without disruption. On the other hand, not achieving right time will lead to more costs to purchase the product at urgency or store the stock when it is not used. Not achieving right place also incurs more costs to deliver the products to the correct location. Both can disrupt the production line and risks the loss of customer’s goodwill.
Achieving right time and right place requires the following:
- Specific and rigorous planning
- Frequent communication with the suppliers