Procurement refers to the process of acquiring various goods and services to run everyday operations. These goods and services are usually procured on a large scale and help organizations to sell or resell products and services. For successful procurement, companies often scout through several buyers and sellers, known as vendors. If procurement is not done correctly, businesses can rake up high expenses.
A strategic procurement process is essential for companies to remain profitable and ensure the continuity of services and deliverables. Implementing efficient procurement in your supply chain management will naturally reduce business expenses and increase profitability.
You might think procurement and supply chain management are identical. However, they are fundamentally distinct, as procurement is just one component of the broader supply chain process.
This article examines the differences between procurement and supply chain management and their specific roles.
Procurement vs supply chain management: what's the difference?
Although procurement and supply chain management differ, people often interchange these terms. This table posits procurement vs. supply chain to provide clarity:
| Procurement | Supply chain management |
| Procurement encompasses the entire process of acquiring goods and services necessary for effective business operations. | Supply chain management is a more extensive process of overseeing the production, distribution, procurement, and delivery of goods and services to customers. |
| Procurement includes vendor search, purchasing, and receipt storage | Supply chain management involves coordinating with vendors, manufacturers, logistics providers, distributors, warehouses, and others to ensure smooth product delivery to customers. |
| Procurement helps you efficiently deliver finished goods and services to your customers by sourcing raw materials, goods, and services from third-party vendors. In other words, it focuses on the input. If you are a retailer, you can purchase goods from various manufacturers and sell them on your e-commerce website to customers.If you manufacture products, you'll need to get the necessary raw materials, which are used to create the final product sold to the customer. | Supply chain management includes all this and incorporates output-oriented processes such as transporting the final products to distributors, warehouses, and eventually to end-users. |
| Procurement is the process of selecting vendors that provide high-quality goods and services for your customers. It is the first step in supply chain management. | Supply chain management involves receiving, storing, and transporting goods, ensuring safe packaging and shipping, and facilitating returns for customers. |
| The procurement process assists in the production of goods and services, making it a supportive function. | Supply chain management ensures efficient delivery of services and products to end-users, leading your business towards its goals. |
Types of procurement in supply chain management:
Now that it is clear that procurement is a subset of the entire supply chain management apparatus, it is time to look at the different types of procurement in supply chain management. Here are the top five types of procurement in supply chain management:
Direct procurement
You may procure These products and services from a vendor to resell to customers. Although most people think of direct procurement as raw materials and components that get manufactured and sold, it could also refer to products you purchase from a manufacturer and sell on your website or at your store. It could also be a service deliverable, such as a piece of content that has been ghost-written, a software tool that has been designed by a vendor, etc., which you may resell to your customers.
Indirect procurement
Indirect procurement includes products and services that enable businesses to sustain operations and deliver final goods or services to customers. This can encompass rent, furniture, consulting services, marketing services, and more, which are still necessary to keep a business afloat despite not being directly related to inventory management.
Strategic procurement
Adopting a long-term, company-wide procurement strategy is the essence of strategic procurement. It enables risk elimination and ensures the timely purchase of essential goods and services. The goal is to avoid supply chain risk and strategically meet your raw materials and inventory needs while reducing operational risks and maximizing your purchase budget.
Services Procurement
As a manufacturer or retailer, you may need external vendors for cloud subscriptions, consulting, or outsourcing processes. The process of procuring services from these vendors is essential for smooth operations. On the other hand, service providers rely on third-party vendors to deliver services to their customers. These vendors play a critical role in ensuring that businesses can provide quality services to their clients.
Goods procurement
You can procure goods from manufacturers and other retailers to sell them for a profit to customers. You may also purchase raw materials to manufacture goods. These can then be resold to customers for a profit. If your business sells services, you may still need goods that help sustain your business. This includes buying stationery, computer peripherals, electric infrastructure, etc., that help run your business efficiently so that you can deliver your services for a profit.
The role of procurement in supply chain management
Procurement is an input process in which a company receives goods and services that helps it to stay afloat and resell or deliver better services and products to its customers. Hence the relationship between procurement and supply chain is vital.
● It is the first step leading to the other supply chain management processes.
● Once raw materials, services, and inventory are procured, they go through other supply chain processes such as storage, manufacturing, transportation, and delivery (if goods).
● Procured services help businesses to remain afloat and keep the supply chain moving forward. For example, marketing consultations can help bring in orders, which allows existing inventory to be sold and delivered through different supply chain processes.
In short, procurement plays a crucial input role in supply chain management and helps ensure a business delivers what it promises to its customers efficiently and quickly.
How can supply chain and procurement work together?
Supply chain management and procurement are two essential components that work together to deliver a company's products and services to end users. Procurement is the initial step in the supply chain process, and both must be in sync for a seamless omnichannel experience. Failure to do so can result in delays, wastage, and increased expenses.
Some of the scenarios that could arise due to a lack of coordination between supply chain and procurement are:
● Raw materials do not reach the warehouse in time, and the manufacturing process gets interrupted.
● Third-party manufacturers do not send adequate finished products to an e-commerce retailer, and the retailer misses out on fulfilling orders. This results in a loss of business and revenue.
● Cloud software services get interrupted, and a company cannot efficiently manage the supply chain due to service disruption.
● The external agency does not implement marketing campaigns during the holiday season, and the retailer suffers losses due to lost promotional opportunities.
As you can see, procurement issues can vary widely and have a ripple effect on the entire supply chain ecosystem. Hence, it is essential to ensure procurement management is in sync with the supply chain. This is only possible when you connect both processes with the help of an ERP that accurately provides data flow between the two operations. Moreover, ERP boosts procurement efficiency.
Choose an ERP with a procurement module
While procurement and supply chain are intricately linked, having a full-fledged procurement module within your ERP is necessary. Priority ERP's procurement module gives you a bird's-eye view of all procurement activities in your organization. In addition, it helps you exchange documents, create procurement reports, and analyze various trends and patterns to make informed decisions.
You can also monitor your suppliers and ensure you issue a purchase order (PO) automatically based on diverse information from other supply chain processes. You can easily automate most steps related to procurement and ensure streamlined inventory planning. From comparing GRV to current stock take to vendor management and reconciliation, Priority's effective procurement module supports your supply chain processes from within.
Contact us today to learn how get the most out of your procurement through ERP.
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