Supply chain and procurement are two interchangeable terms that is often mixed up. Still there are certain communities that perceive procurement outsourcing and supply chain as the same operational activities. Although they are very closely related still, they are two completely different aspects of an organization. And in order to run an organization properly, it is vital for the society and the workers of the corporate world to understand the thin line of difference between supply chain management and procurement management. You can think of the two as the two different branches of the same tree. Both work together to keep the organization working, reducing cost and looking after the production management system, but work in their own line of work.
Now that you know procurement and supply chain are completely different from each other, you need to know what they actually are and what parts they play in an organization.
Procurement is a process of an organization that aids the company through the acquisition of goods required to carry out the business.
Supply chain management is the procedure in which the goods are converted into products and then they distributed to the customers.
This context will shed light on the primary differences and relationship between procurement and supply chain management.
What is Procurement?
Procurement is that important aspect of an organization that deals with the process of obtaining goods and services, typically to serve the business purposes. It is an act of finding the relevant sourcing industries within a specific region, within the nation, or outside the nation agreeing to terms, and acquiring the goods through a competitive or a tendering bidding process. The final act of procurement outsourcingmainly directs to complete the purchasing operations. However, it can sometimes take over the other critically important business activities leading up to the final buying decisions. These purchasing decisions are mainly referred to the business spending. It requires thorough preparation, application, and payment processing. Moreover, procurement operations are also involved in making careful purchasing decisions during scarcity.
In order to run an organization successfully and maintain the profit margin, the cost of procuring services is must be less than the combined cost of selling the goods to customers and other expenditures associated with processing the services.
So, now you can understand how procurement works to ensure the organization acquire the best possible suppliers to procure their goods, making them work for the best possible price. This shows how important it is for the procurement leaders to search for reliable sourcing destinations and suppliers, acquire quality raw materials, ensure the quantity, while looking after the location to outsource the goods. All these factors play a big part for an organization. These tasks are carefully assessed by the procurement managers who also negotiate for the best available pricing for their company.
Let’s look at the major tasks involved in the procurement process:
- Developing quality standards
- Funding purchases
- Creating orders for the goods to be purchased
- Bargaining price with the suppliers
- Purchasing goods
- Controlling and managing inventory
- Disposing off the waste products, for example packaging
- Analysis of cost-utility and cost-benefit
Procurement can further be classified in two other groups. Direct procurement and indirect procurement. In indirect procurement system, the procurement managers need to look after the expenditures of every day operations and other essential operations that does not bring direct profit to the organization. On the other hand, direct procurement involves every operation that directly impact the bottom line of the organization.
In a nutshell, the task of the global procurement service managers are completed once they can acquire goods at reasonable price for the business model.
Who oversees Procurement?
Procurement managers are appointed to oversee the procurement process for an organization. Whereas the organization can sometimes assign the responsibilities to an operations manager.
What is Supply Chain?
Supply chain management is a series of processes involving the management of the flow of services, moving and storing the goods produced, looking after the work-in process inventory, managing the finished goods, and managing the end-to-end order fulfilment procedure from the point of origin to consumption. It is a vital system involving entities, information, people, people, and resources that manufacture the goods and supply to buyers. In simpler words, it is a network that helps in building a connection between the organization and its vendors to manufacture the goods and distribute the specific products to buyers. The network involves a complicated step showcasing the steps to get the services from the original state to the customers.
Understandably, the supply chain of an organization will differ on the basis of products it sells.
Supply chain operations of an organization involve the following entities:
- Gathering of raw materials, warehouses, manufactures, producers, and vendors
- Searching for transportation companies
- Wholesale warehouses
- Stock rooms
- Distribution centers
- In-house staffs
- Teenage trainee working to register the workflow
Besides, the supply chain managers also look after the tasks involved in moving the services, including quality control, procurement, operations, finance, market research, strategic sourcing, customer service, and distribution.
What is Supply Chain Management?
Supply chain management is the act performed by supply chain managers to oversee the flow of goods and transform the quality raw materials into services for the final buyers. Supply chain management is the key to achieve success for an organization. The reason behind the success is mainly the increase of annual revenue and margin, influencing consumer satisfaction, reducing costs, improving company’s competitive aspect, and optimizing rate of supply with an increase in proper management of supply chain operations.
Who Oversees Supply Chain Management?
A supply chain manager is usually appointed to look after the various operations involved in supply chain management. The supply chain manager work in the following areas to bring profit to the organization:
- Improve service flow
- Reduce the costs
- Maintain production quality
- Minimize shortages
Supply chain is an important aspect of an organization as a defect within the process can bring negative repercussions for the organization as a result.
The global procurement service managers and the supply chain managers work independently in their lines of work and bring success to an organization.