4R Principles of Enterprise Procurement

What principles should be followed in the process of enterprise procurement in order to maximize its efficiency? Experts put forward the 4R principle of enterprise procurement: buy the required quantity of items at the right price, at the right time.

Right Price–One of 4R Principles of Enterprise Procurement

Price is always the focus of purchasing activities. One of the most important points that companies care about is how much funds can be saved during the process. So the purchasing staff has to spend a lot of time and energy on “bargaining”. A price is determined by the type of the item and whether it is a long-term purchase. What’s more, the relationship between market supply and demand is also a factor; it is also related to the familiarity of the purchaser with the market situation of the item. If the purchaser fails to grasp the pulse of the market, the supplier may deceive the purchaser when quoting. We could obtain an appropriate price through the following steps:

Getting quotes from multiple channels

This not only requires that buyers get quotes from existing suppliers but also to get quotes from new suppliers. Businesses may have been working with some existing suppliers for years, but their prices may not be discounted. After obtaining quotations from multiple channels, the company will have a general understanding of the market price of the item and compare it.

Price comparison

What you buy for professional procurement may be a piece of equipment worth millions or ten million yuan. This requires that purchasers exercise caution. Since the items included in the supplier’s quotation are often different, the purchaser must convert the conditions in the different quotations to be consistent before they can be compared. Only in this way can the true and credible comparison result be obtained.

Bargaining

After the price comparison, we can screen the most appropriate price for two to three quotes. With further communication, not only can detailed procurement requirements be communicated to suppliers. But they can be further “bargained.” This is because suppliers’ first quotes often contain “moisture.”

Pricing

After the above three links, the price acceptable to both buyers and sellers will be used as the future, the official purchase price.

Right Quality–Two of 4R Principles of Enterprise Procurement

An enterprise that does not value quality cannot stand in the fierce market competition environment today. Also, an excellent purchaser should not only be a savvy businessman but must also play a role of management to a certain extent at all times. In the daily procurement work, it is necessary to arrange part of the time to promote suppliers to improve and stabilize the quality of goods.

The serious consequences of the quality of purchased items not meeting the requirements for use are obvious:

Poor quality of incoming materials often leads to the use of a lot of time and energy by related personnel in the company to deal with it. And this will increase a lot of management costs. Not only that, if the company requires rework, it will also lead to increased rework on the production line, which will, in turn, lead to a reduction of product quality and production efficiency. As a result, the production plan will be postponed and may result in the failure to deliver to the customer at the promised time. This will reduce the customer’s trust in the enterprise. Then, if the customer returns the goods due to the poor quality of the incoming material, the company would lose its reputation, and even the customer will be lost.

Right Time–Three of 4R Principles of Enterprise Procurement

If the supplier does not deliver raw materials on schedule, there will often be a shutdown and waiting situation. If we do not ship the product cannot as planned, it will cause strong customer dissatisfaction. On the contrary, if raw materials are brought in too far in advance and stored in a warehouse to wait for production, it will cause excessive inventory and a large backlog of purchase funds, which is not ideal for companies. Therefore, the purchasing staff must play the role of coordinator and supervisor to urge the supplier to deliver on time. For some companies, the timing of delivery is important.

Right Quantity–Four of 4R Principles of Enterprise Procurement

Although it is possible to receive volume discounts for bulk purchases, it will accumulate purchase funds. It is critical to determine the purchased quantity needed. This is to avoid it being too small to meet production needs. When purchasing according to the economic order quantity, the procurement staff must not only ensure that the supplier delivers on time, but also make sure that the quantity is correct.

Purchasing staff, based on experience, believes that it is difficult to actually purchase in full accordance with the above 4R principles and it is often necessary to sacrifice some aspect. For example, if we overemphasize quality, the product cannot be supplied at the lowest price in the market. Because the supplier has invested a lot of energy in quality control, and it will inevitably pass part of this cost on to its customers. Therefore, the purchaser must take a comprehensive view of the situation. And he or she must accurately grasp the requirements of the company on all aspects of the products purchased. It will allow them to make reasonable requests when negotiating with the supplier. This is to strive for more opportunities to obtain a realistic quote from the supplier.

In short, only comprehensive consideration can achieve the best procurement. It requires procurement implementation personnel to accumulate experience in long-term practical operations. In foreign trade activities, it is difficult for purchasers to understand companies in other countries. So it is best to know the companies that want to cooperate through reliable third-party organizations.