Here’s a question for you: Do you know the difference between procurement and supply chain management?
We ask because the terms are so often misused. The better you understand the role of each of these practices, the more effectively you can communicate with stakeholders along the value chain.
Not only that, but a good grasp of the meaning of procurement and supply chain management allows for better leverage of efficiencies and benefits that these two processes can bring to your company.
Going back to the question, if you’re not sure don’t worry. Let’s look at the answers below.
What is Procurement?
The definition of procurement provided by the Chartered Institute of Purchasing and Supply (CIPS), states that:
“Procurement is the business management function that ensures identification, sourcing, access, and management of the external resources that an organization needs or may need to fulfill its strategic objectives.”
This is a good definition.
Things become a little murky when people learn that procurement service is a link or a part of the overall supply chain. This may lead one to then ask, “What is a supply chain?”
Supply Chain Definition
CIPS gives us another comprehensive definition, a supply chain is:
“….the activities required by an organization to deliver goods or services to the consumer.”
There are four main stages within a supply chain:
· Logistics
· Operations
· Marketing and Sales
· Services
The handling of all the operations within a supply chain is what is known as supply chain management.
What is Supply Chain Management?
Explained simply, supply chain management is:
“…the handling of the flow of goods and services from the raw manufacturing of the product through to the consumption by the consumer.”
The entire process can be visually represented as follows:
As you can see, the supply chain comprises numerous links such as logistics, material management, distribution, control, and freight plus procurement.
Supply chain management is critical to the success of any company.
Interestingly, enterprises that have optimal supply chains enjoy 15% lower supply chain costs, less than 50% of the inventory holdings as well as three times faster cash-to-cash cycles.
That’s not all.
79% of businesses with high-performing supply chains go on to achieve revenue growth far superior to the average in their respective industries.
What does this tell us?
Knowing what a supply chain is, how it functions, and its role can catapult a business and distinguish it from its competitors.
Now, let us address the matter at hand: the differences between procurement and supply chain management.
The Difference Between Procurement and Supply Chain Management
To be sure, there is indeed a direct relationship between the terms procurement and supply chain management. In fact, in Australia, the two are synonymous and can be used interchangeably.
However, in North America, a distinction must be made. And here are the major differences:
PROCUREMENT
SUPPLY CHAIN MANAGEMENT
Process of acquiring goods and materials needed by an enterprise.
Process of transforming procured goods into products and distributing them to customers as efficiently as possible.
Identifies the services and raw materials required as well as the suppliers.
Uses the services and raw materials in the manufacturing process.
Procurement is a part of the supply chain.
Incorporates all aspects of the supply chain including procurement.
The main goal of procurement is to make sure the consumer gets goods and services at a cost-effective price.
The major objective of supply chain management is the smooth functioning of the entire supply chain.
The Importance of Procurement and Supply Chain Management
Procurement and supply chain management are integral to the success of any business.
Efficient procurement provides the following benefits:
· Lowers overall costs
· Reduces associated supply chain risk
· Improves quality
· Brings greater added value
· Increases operational efficiency
· Ensures security of the supply chain
Good supply chain management allows enterprises to benefit from:
· Improved financial position as a result of the company delivering value
· Customer satisfaction that comes from a fully-functional supply chain
· Lowered operational and logistical costs
· Higher profitability
Conclusion
Now you know the difference between procurement and supply chain management. If your goal is to improve your procurement strategy as well as efficiency along your supply chain, it should be easier to visualize the areas needing immediate attention.
Ultimately, the best way to get the most from each process is to have this understanding.
Are you looking for procurement software solutions to help streamline operations in your business? ProcurePort is one of the leading providers of procurement software. From RFx templates to contract management options, we have it all.
To discuss your enterprise needs with a consultant or to schedule a demo of our procurement solutions contact us today.
