‘Effective procurement’ is the ability to obtain goods and services of the right quality, in the right quantity, delivered to the right place, at the right time, for the right price. Independent procurement consultant Naomi Clews, of Naomi Clews Consultancy, explains the ‘five rights’ of procurement and provides strategies to stretch your budget further and enable you to work smarter with suppliers
The five interlinked ‘rights’ provide a framework for effective procurement. The failure of one right could impact on your ability to achieve the other four; for example, it may become necessary to compromise on right quality or right price in order to receive the item at the right time. It is necessary to manage and mitigate the risks associated with any accepted compromise to ensure your procurement processes remain effective. Let’s take a more detailed look at each of the five rights of procurement.
Right one: quality
The right quality is achieved when a product or service is considered fit for purpose. It should meet the standards, features and performance set out in the specification. The price a school is willing to pay for goods and services will impact on the right quality decision-making process.
Get it right
By asking questions such as:
- What are we currently sourcing?
- Does it satisfy and meet our needs? If not, why not?
- Does our supplier’s current performance measure up to our stakeholders’ (parents, pupils, governors) expectations?
- If stakeholders are unsatisfied, can we reduce costs or increase quality?
By driving a process of continuous improvement, in partnership with suppliers, you can mitigate the costs associated with quality improvements. If you can encourage suppliers to develop innovative, cost-effective methods of performance and quality, your suppliers could solve your quality problems for you.
An output-based specification provides autonomy to suppliers – aiding in the development of solutions that drive down total costs, whilst maintaining or improving services. If the school is innovative, a performance partnership can deliver the same services at lower cost, higher levels of service at the same cost, or – better still – higher service levels at lower costs.
By incentivising suppliers to provide a great service – rather than just ‘the service’ specified – you can leverage suppliers’ unique skills, capabilities and efficiency. Working closely with schools will reap rewards for suppliers, too – greater profitability, longer term contracts and loyal customers are amongst the many reported benefits.
This approach is superior to the conventional cost-plus or fixed-price transactional contract where the supplier has no incentive to do anything above and beyond providing ‘the service’.
Right two: quantity
The right quantity is achieved through accurate demand forecasts for products and services on a daily, weekly and monthly basis. Whilst considering the historical demand, by analysing the demand highs and lows throughout the previous year, you can forecast the quantities required to meet and align with your previous demands. However, it is important to factor in any new developments which may either increase or decrease demand, such as an increase or decrease in pupils.
Get it right
- By segmenting products and services into categories such as strategic critical, strategic routine and non-critical – to create a sourcing strategy for each category.
- Knowing the who, what, why, when and where for product and service demand helps you to set minimum and maximum inventory levels. This supports stock rotation and ‘just in time’ deliveries (see right four – time) to avoid stock depreciation and obsolescence.
Right three: place
The right place combines the ability to identify the optimum delivery of the receipt and storage of goods and to find the best supplier to source the products and services from.
Get it right
- By using a central store for the receipt and onward distribution of goods, thereby reducing the need for unnecessary movement and handling.
- When choosing suppliers, scrutinise their accepted methods of order placement, minimum orders and lead times.
Right four: time
The right time is closely linked to the right quantity. Just in time is an inventory control methodology, proven to reduce suppliers’ response times. Kanban cards are used to signal a depletion of inventory which triggers the replenishment of stock. Consumption drives demand for more inventory and eliminates the ‘just in case’ ordering mentality which often leads to waste.
Get it right
- By using wholesalers or digital marketplaces to fulfil small, frequent orders at the expense of an annual delivery cost.
- Low-value, non-critical items, such as stationery, are candidates for consignment stock. The stationery company will manage the inventory levels and replenish the stock as required – invoicing the school only for the inventory consumed.
Right five: price
The right price refers to costs. For example, the cost of acquisition, whole life costs and the ‘opportunity cost’ – meaning other alternatives are lost at the expense of one being chosen.
Get it right
- By incentivising suppliers to deliver solutions and not just activities. This can result in higher service levels at the same, or lower, cost.
- Furthermore, the use of gain share agreements – and working collaboratively to share the risk and rewards by pooling resources – is an excellent way of motivating suppliers to innovate and take the cost out of services.
In summary, get the five rights of procurement right by analysing your supply chain and working more closely with your suppliers to help make your school’s budget stretch further.
This article featured in the June/July issue of Education Executive. Subscribe now to keep up-to-date with the latest in school business management and leadership.
Don’t forget to follow us on Twitter, like us on Facebook, or connect with us on LinkedIn!