In today’s globalized business environment, procurement and supply chain management play a pivotal role in the operations of any business. While both these terms are frequently used interchangeably, they represent different, yet interconnected aspects of the material and service flow process. It is important for companies to know the difference between procurement and supply chain as it affects how they manage their resources and costs. Companies need to understand what goes into procuring goods and services and then effectively prepare and deliver the goods for consumer use.
Procurement refers to the process of sourcing, acquiring, and purchasing goods and or services from external vendors and suppliers. The procurement process often requires a myriad of activities ranging from the researching of products, the quality of goods sourced, demand planning, understanding inventory control and management and eventually, negotiating prices with suppliers for purchasing. Companies first needs to procure the necessary goods and materials relevant to their industry to generate a supply chain.
Dedicated procurement software could be used to assist in making the process easier and more streamlined as it assists in determining the demand and prices that an organization can afford to pay for goods without disrupting the spending involved in subsequent supply chain management.
Procurement management expertise is vital for an organization as it has a direct impact on the company’s bottom line, across all industries, as companies’ source and manage external supplier relationships to ensure the required goods are acquired at the best possible cost.
In optimizing cost savings, maximizing time and resources, procurement can be leveraged as a competitive advantage in driving down costs by avoiding delays and errors.
Supply chain management is what happens after procuring goods and encompasses the entire network of stakeholders, resources, activities, and technologies involved in the creation of a usable product ready for the market all the way to its delivery to the customer or end-user. It integrates various processes like design, planning, execution, control, and monitoring of supply activities, including the overseeing of production, shipment, and distribution of goods and services.
A business could employ one or several supply chain managers to direct and improve the flow of products and services in the chain to assist with identifying and eliminating pain points, minimizing supply shortages, maintaining quality, reducing costs and so much more. Supply chain management has a significant influence on a company’s revenue, rate of supply and customer satisfaction.
Importance of Procurement and Supply Chain Management
Both procurement and supply chain management contribute profoundly to a companies’ efficiency, visibility, cost control, competitiveness, and customer satisfaction and by implementing best practices based on the business needs, the process assists in ensuring that the production of goods runs smoothly.
The risk of supply shortages could be minimized by acquiring the right amount of goods at the right time for the best possible price and increase the company’s profitability. Exercising control over the supply chain, organizations can maintain product quality while meeting deadlines, resulting in the sale and delivery of goods and or services to satisfied customers.
Key Differences Between Procurement and Supply Chain Management
While procurement could be considered a part of overall supply chain management, there are key differences that sets the two processes apart:
- Procurement focuses on the initial acquisition of goods that will then enter the supply chain. Supply chain management, however, has a broader scope and is concerned with supervising and or managing the manufacturing, storing, and delivering goods to consumers and customers and, when required, the returning of defective or damaged products.
- The main objective of procurement is to establish a cost-effective and reliable way to source and buy goods from suppliers, at the best possible cost, with the correct quality, at the right time. The objective of supply chain management on the other hand, takes a more holistic view, ensuring that all functions are streamlined and integrated for optimum efficiency and effectiveness until the goods become ready for sale and use.
- Procuring goods may happen at a faster rate than the rest of the phases in the supply chain, however, procurement and supply chain management should be done concurrently to ensure greater efficiency.
- Stakeholders’ relations in procurement refers to the primary interactions between the purchasing company and its vendors or suppliers, where supply chain involves multiple stakeholders, including manufacturers, suppliers, distributors, retailers, and customers.
- The main objective of procurement is cost savings, acquiring the best quality goods or services at the most competitive prices, whereas the supply chain objective is to optimize the entire chain process from purchasing raw material, to delivering the goods to the end-user, focussing, and aiming to reduce lead times, minimize inventory holding, and enhance customer services.
How Procurement and Supply Chain Management Interact
While there are key differences between procurement and supply chain management, the two processes share several similarities which are both essential for any business to sell their products and or services and the ways that the two processes interact with each other indicates how deeply linked they are.
The process of procurement feeds into the broader supply chain which have a direct effect on the margin and bottom line, for example, negotiating good prices on raw materials can have a positive effect on the company’s profit margins. Regular and effective communication between the procurement and supply chain departments assists in ensuring that the correct amount of goods is purchased for the right consumers and customers at the right time.
Effective coordination between procurement and supply chain don’t happen by coincidence but rather a deliberate synergy which enhance overall business performance. There are many steps within the actual procurement process which can be designed to be more detailed and tailored to fit the specific needs and policies of different companies. Technology, especially procurement software and e-procurement platforms, can assist in streamlining and automating many of the procurement steps. Supply chain management is a broad and integrated field, consisting of various stages to ensure the smooth flow of goods and or services, from the point of origin to the end-user delivery. Procurement is focused on the initial acquisition of goods, while supply chain management is concerned with the entire process of getting those goods to the customer, with continuous stakeholders’ collaboration and adaptive strategies to response to ever-changing business environments and needs.