Purchasing is one of the basic functions in many organizations, it represent an important part in the company budget. It can be difficult to make judicious purchasing decisions because there are currently so many different products on the market. A buyer cannot make a purchasing decision based off of impulse or feelings. A careful purchasing decision requires a serious attention before, during and after the purchase process. To ensure a beneficial purchase process, companies can follow five purchase objectives: the 'five rights'. But do the ‘five rights’ answer to real needs of the modern businesses? This essay explains in a first part what purchasing is and how performance measurement contributes to management. Then in a second part, it defines the 'five rights' framework. Finally the last part considers the relevance and suitability of this framework when planning industrial purchasing activities.
What is purchasing?
In order to evaluating the ‘five rights’ framework and its relevance to purchasing, we need first to explain what the industrial purchasing is.
Purchasing is a very wide concept, defined differently by many authors. According to W.Dobler and David N.Burt (1996) purchasing is simply “the acquisition of required materials, departments and equipments” in a company. The Van Weele definition of purchasing is more detailed: “The management of the company’s external resources in such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities is secured at the most favourable conditions” (2010).
Why is purchasing so important in business management? In his Value Chain, Porter represents the purchasing as a support activity in the business. Support activities are aimed at maintaining the company's infrastructure. The purchasing or procurement must provide support to the primary activities of the firm: the inbound and outbound logistics, the operations, the marketing and sales and the service (Porter, M. 1986).
Therefore, purchasing department is an essential key in enterprise. It has to coordinate the supply of materials in a company, and every company need materials so purchasing is a necessary function within most of firms. The purpose of any industrial activity is the development and manufacture of products. This purpose is fulfilled by the five M’s: machines, manpower, materials, money and management. Without materials, an industry cannot work.
The functions and objectives of the purchasing department in a firm are numerous. First, the purchasing department has to obtain all necessary materials for the production of the firm. It is necessary to keep inventory ordering at an acceptable level. This department must define the purchasing specifications of the required material, in terms of quality and quantity, and determine the time of delivery. Then, the purchasing department has to evaluate the price of products. It is important to have the best possible because it has a direct impact on the firm profitability. So, the department is supposed to find the best supplier and conducting negotiations with him. But purchasing departments are also responsible for controlling the performance of their supplier and the quality.
“A purchasing department is the hub of a large part of a company's business activity," (Dobler and Burt, 1996). Indeed, the purchasing department has also an important link with all other departments in a company: engineering, production, marketing or finance. For instance, the purchasing department can’t make a decision without consulting financial department because it determines budget forecast, then the modality of payment or the financial situation of suppliers.
A company sets a number of objectives in the purchase process, and...