What is procurement and supply chain management?
Procurement is the process of buying goods, services, and materials from suppliers. The procurement process is reliant on a supply chain, which is made up of the various components that make up a company's sourcing strategy. Supply chain management refers to the study and practice of planning and executing an organization's sourcing strategy with regard to needs, costs, quality requirements, time constraints and other factors.
Procurement and Supply Chain Management- The Perfect Joint at the Perfect Time
What is Procurement in Supply Chain?
Procurement is the process of purchasing goods and services for a business to help it run. Businesses use procurement because it helps them save money, which translates into more profit. Through procurement, you can also ensure that your company's needs are met, which will help it grow. Procurement has become increasingly important over time as businesses have expanded their products and services to meet customer demands.
Procurement management is the process of controlling processes related to acquiring goods, services, products, and materials to meet business needs. Businesses across various industries depend on procurement management to manage the relationship with suppliers to make sure that raw materials are acquired at an optimum cost. It is an end-to-end process control that begins with the incoming of raw materials and ends with going out of finished goods.
What are the types of procurement?
Procurement is the process of obtaining goods or services to fulfill company needs. It includes activities such as planning and executing a purchase order, negotiating a contract, ordering raw materials and supplies, and managing inventory. Common types of procurement include-
1. Direct procurement- Direct procurement refers to purchasing raw materials, wholesale goods, and machinery directly from contract suppliers. The purchase of these products finds its way to the client of the end customer of the business. Direct purchase is usually made frequently in large quantities from suppliers at optimum cost.
2. Indirect procurement- Indirect procurement refers to buying goods for the day-to-day management of a business, such as office supplies, repairing equipment, and services. Indirect procurement does not add to the company's bottom line. Small businesses employ an office manager, while large businesses hire a facilities management provider for indirect procurement. Indirect procurement is crucial for the operations of a business. Generally, indirect procurement is about 15-27% of a business's total revenue.
3. Services procurement- Services procurement refers to the hiring of staff members temporarily as specialty and consulting services including marketing agencies, IT personnel, facilities management, law firms, etc.
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What Is Supply Chain?
Supply Chain is a system of organizations, technologies, and people involved in the production and distribution of goods. From raw materials to finished products, the supply chain links all the components that contribute to making an item. The term can apply to both goods that are shipped from one location to another (supply chain logistics) as well as those goods that are produced in one place and then distributed locally (supply chain management). The supply chains of a company depend on the items and services it deals with. Supply chain management aims to look holistically at the entire supply chain from supplier through to the consumer and review three core areas of people, process, and systems to maximize value from all activities.
What Is Supply Chain Management?
Supply Chain management is the process of planning, organizing, and controlling all activities involved in getting a product from its source to the customer. Supply chain management includes all activities related to obtaining raw materials, manufacturing and assembling products and parts, distribution, storage, logistics, or transportation how the product is delivered to customers or end consumers. Supply chain management starts with a procurement strategy. Companies need to determine what materials they need to make their products. The supplier acquisition process begins with sourcing strategies like identifying potential suppliers; establishing long-term relationships with suppliers; producing requirements for suppliers; evaluating supplier performance against these requirements; negotiating terms of purchase with suppliers and opportunities for cooperative sourcing arrangements. Supply chain management refers to streamlining business operations by reducing bottlenecks and making sure that the end-to-end supply chain process runs smoothly from manufacturing goods to delivering finished goods to the customers.
Procurement vs. Supply Chain Management
As we know now the procurement process is acquiring the raw materials required to operate your business. Supply Chain management is the process of transforming those supplies into finished goods and providing customer service. Both processes are essential for business operations. They work alongside each other, as the procurement process allows business owners to acquire raw materials, and supply chain management includes several processes for the production of finished products.
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Difference between Procurement and Supply Chain Management
Procurement focuses on the input of raw materials. On the other hand, supply chain management concentrates on the production and delivery of finished goods.
Procurement focuses on inventory management and is essential for maintaining supplier relationships and ensuring that raw materials are delivered on time at the best possible cost. Supply Chain Management involves the entire process of receiving raw materials, inventory management, logistics, and making sure that the finished goods reach the end customers. Supply chain management also involves providing customer services.
Procurement is a branch of supply chain management, as it assists in acquiring the raw materials for the production of finished goods. Procurement is part of the entire production process. Supply chain management, on the other hand, includes production and distribution.
Procurement is a support function of business operations as it focuses on making sure that there is a continuous inflow of supplies required for the production of finished goods.
On the other hand, supply chain management is the key business process and procurement is part of that process.
Supply chain management is the process that deals with the transformation of supplies into finished goods and their distribution to the clients.
Relationship between Procurement and Supply Chain Management
Procurement and supply chain management are two similar yet different areas of business. The terms procurement and supply chain management are often used interchangeably, but there are differences between the two. Procurement is the purchase of goods or services for use in a business by managers or buyers from sellers or providers. Supply Chain Management is an umbrella term that includes procurement, along with many other processes such as quality control, inventory management, logistics, and customer service. Supply chain management has become more important in recent years because it can help to improve a company's performance. Here are some similarities between procurement and supply chain management to help you better understand the two fields.
Procurement management provides the inputs required to manage your day-to-day business operations. Supply chain management is the process of transforming those inputs into finished goods and delivering them to the end customer.
Both procurement management and supply chain management allow business owners to achieve their business targets. Procurement and supply chain management work hand-in-hand to fulfill your business goals.
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