Thursday, February 22, 2024
Thursday, February 22, 2024
HomeProcurement/Supply Chain ManagementHow Procurement is Different from Supply Chain Management?

How Procurement is Different from Supply Chain Management?

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Is the procurement and supply chain management same? What is the basic difference between the processes of procurement and supply chain management? In this post, we will try to find the answer of these questions.

What is Procurement?

Procurement is the processes of acquiring goods or services for the business needs of the organization. Every organization needs goods and services to fulfill its short term and long term objectives. These goods and services are acquired from external sources. The procurement manager has to ensure that the cost of goods and services should be reasonable so that the organization makes profit in selling the final product.

The procurement manager must also assess the factors like quality, quantity, time & place of delivery of goods and services on the continuous basis. He/ she also needs to negotiate with vendors and suppliers w.r.t. these factors.

The procurement is therefore to ensure that the organization gets goods and services at reasonable price, at right time, at the intended place and with the desired quality, so that the objectives and business needs of the organization are fulfilled.

Following processes come under procurement function:

  • Need analysis
  • Developing quality standards
  • Arranging the finances for the purchase
  • Creating purchase orders
  • Negotiation with the suppliers
  • Receiving goods and services
  • Inventory control
  • Inventory management
  • Disposal of waste
  • Cost benefit analysis

It is important to note that the purchasing activity completes when your organization receives goods or services.

What is Supply Chain Management?

Before discussing supply chain management, let us first understand what is supply chain management:

Supply Chain

A supply chain is a network of agencies, people, resources and functions that is involved in producing a finished product from the raw material and distributing that product to the end user.

Supply chain includes entities like:

  • Raw material suppliers
  • Vendors
  • Warehouses
  • Manufacturers
  • Transporters
  • Wholesale warehouses
  • Retailors
  • Distribution centers

Supply chains also include the processes and functions that contribute to the manufacturing, transportation and distribution of products, such as, quality control, market research, procurement, strategic sourcing, operations, distribution, finance and customer services.

So, you can see that the procurement is a part of supply chain of an organization.

Supply Chain Management

Supply chain management is the management of flow of information, materials and services used for transformation of raw materials into the final product and satisfying the consumer requirements. It includes the active management of activities and processes like concept development, product design, testing, manufacturing, marketing, transportation, distribution, customer care, finance, etc., some of which are the part of product life cycle.

Supply chain management also involves the management of different stakeholders in the supply chain, like, internal staff, suppliers and vendors of raw materials and parts, transportation agencies, distributors, consumer, etc.

Supply chain management is a key function for any organization as it has potential to save a lot of money. An effective supply chain management gives a competitive advantage to an organization. Improvement of the supply chain strategy may result in increased profit margins and annual revenue, enhanced customer satisfaction, optimized rated of supply and cost savings for the organization.

Difference Between Procurement and Supply Chain Management

While many processes of procurement and supply chain management are similar, these two are not interchangeable. The basic difference between procurement and supply chain management is that the procurement is acquiring goods and services for the needs of the organization while the supply chain management is transforming those goods into finished products and distributing them to the end users.

Procurement process ends when the goods or services are received by the organization while the supply chain management goes beyond receiving the goods or services up to transforming them into final products and distributing to the end users.

Procurement is generally treated as a tactical function while the supply chain management is a strategic function of the organization which provides a competitive advantage to the organization.

Procurement manager is responsible for finding new suppliers, acquiring goods and services, negotiating terms and conditions, drafting contracts and monitoring suppliers’ performance while the supply chain manager is mainly responsible for supply chain planning and strategy, discovering best source of raw materials or services, improving efficiency and productivity of manufacturing processes, delivery & logistics, monitoring supplier’s quality and overseeing the return of defective products.

Conclusion

People often think that procurement and supply chain management are the same thing, but the supply chain management is a vast domain which extends far beyond the procurement. In some cases, the procurement is a part of supply chain management. Procurement is mainly a process of acquiring goods and services for the organization while the supply chain management is a collection of processes related to acquiring raw materials, transforming them into finished products, distribution of finished products to the consumers and sometimes managing return of defective goods from the consumer. Procurement is often treated as tactical function while the supply chain management is a strategic function which provides a competitive advantage to the organization.  

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Rajesh Pant
Rajesh Panthttps://managemententhusiast.com
My name is Rajesh Pant. I am M. Tech. (Civil Engineering) and M. B. A. (Infrastructure Management). I have gained knowledge of contract management, procurement & project management while I handled various infrastructure projects as Executive Engineer/ Procurement & Contract Management Expert in Govt. Sector. I also have exposure of handling projects financed by multi-lateral organizations like the World Bank Projects. During my MBA studies I developed interest in management concepts.
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