07/05/2023


procurement and supply chain management

The supply chain and procurement teams are two critical functions within any business model. While they are closely interrelated, their roles, tasks involved, and the perspectives they bring are distinct.

The supply chain, as a term, encompasses a company's entire journey of raw materials converting into finished products. This includes everything from initial design, sourcing of materials, production cycle, logistics, inventory control, to distribution of the final product. Each stage of the process is interconnected, forming a network that depends heavily on efficient and effective management.

Supply chain management (SCM) is the active coordination of this chain, ensuring a smooth flow of goods and services from suppliers to customers. It involves the monitoring of processes and activities such as inventory control, managing the network, and overseeing the finished goods inventory.

The aim is to reduce costs, improve service levels, and boost the company's competitive advantage. For a supply chain manager, maintaining the right balance between demand and supply, ensuring quality control, and achieving cost reduction is paramount.

 

Procurement Defined

On the flip side, procurement, also known as purchasing, is a subset of the process. It focuses primarily on the initial stages, which involves sourcing and acquiring the goods and services required to operate the business. This encompasses how procurement covers both raw materials required for production and indirect procurement, which could include office supplies or services that keep the business running smoothly.

Procurement management, hence, involves identifying potential suppliers, negotiating supplier contracts, controlling costs, and ensuring a constant supply of necessary goods or services to meet the company's supply chain requirements.

It plays a critical role in controlling costs, as the prices negotiated for goods and services directly impact the company's bottom line.

Understanding these definitions and their distinct roles clarifies the difference between procurement and the overall supply chain process. Both functions are integral to the efficient running of a business, and both require skilled professionals to ensure that the tasks involved are performed effectively and contribute to the organization's objectives.

Through such an understanding, we can better grasp how these functions interact and contribute to the broader goal of delivering value to the end customer.

 

Key Roles: Supply Chain Manager vs. Procurement Manager

In the complex web of business operations, supply chain managers and procurement managers play vital, yet distinct roles. Their responsibilities, while intertwined, address different facets of a company's functions.

Supply chain managers are at the helm of a business's supply chain operations. They are tasked with overseeing the complete life cycle of a product, right from the acquisition of materials to the delivery of the final product to the customer.

A supply chain manager's duties often involve coordinating with various external logistics providers and internal teams. They must ensure that all the cogs in the supply chain machinery are working in harmony.

This involves monitoring inventory levels, mitigating any issues in the supply chain, and ensuring that all critical components in the supply chain are functioning seamlessly.

 

Supply Chain Flexibility

Furthermore, the managers are continually working on strategies for improving supply chain flexibility. They must adapt and respond to changes in market demand, supply chains' disruptions, or changes in business strategy.

They analyze the processes and devise ways to improve, streamline, and optimize them, ensuring the supply chain remains resilient and adaptable.

Contrastingly, procurement managers have a more specialized role. Their focus is squarely on the acquisition of goods and services needed to drive the company's operations.

They deal with tasks involved in obtaining these goods and services, with an underlying objective of value optimization. This implies not only securing the best price but also considering the quality, delivery, and service offered by the supplier.

Negotiating supplier contracts is a significant part of a procurement manager's role. They must ensure that these contracts are advantageous to the organization, which involves conducting comprehensive market research, understanding pricing trends, and leveraging their negotiation skills."

 

The Supply Chain Process: From Raw Materials to Finished Goods

The supply chain process represents an essential and dynamic sequence of steps, turning raw materials into finished goods ready for the consumer. This transformation involves a complex network of interconnected activities and resources, requiring careful planning, management, and control.

The journey begins with sourcing of materials. At this stage, procurement managers negotiate with suppliers to secure the necessary inputs at the most favorable terms. This involves an assessment of suppliers' abilities to provide goods of the desired quality and at a cost that fits within the company's budget.

Once the materials are procured, they move into the production cycle. During this stage, materials are transformed into finished goods through various production processes. The efficiency and effectiveness of these processes can directly impact the final product's quality, cost, and the time it takes to reach the market.

 

Quality Control

Quality control is an integral part of the overall process. This involves a set of procedures intended to ensure that a product or service adheres to a defined set of quality criteria or meets the requirements of the customer or client. Quality assurance not only checks the final product but also the processes used to create it, helping to identify and rectify any potential issues early.

Post-production, the finished goods are stored in warehouses until they are needed in the distribution process. This is where control of inventory becomes crucial. The aim here is to maintain an optimal inventory level – one that is sufficient to meet customer demand but not so high that it leads to unnecessary storage costs or the risk of goods becoming obsolete.

The final stage of the supply chain process involves distribution functions. Products need to be moved from the warehouse to retail outlets or directly to the customer. This involves coordinating with logistics personnel, planning routes, and managing the transportation of goods.

Throughout this entire process, the supply chain manager is the orchestrator, coordinating each step, troubleshooting issues, and ensuring that the process runs smoothly. They also monitor and manage any defective or unwanted products, taking steps to minimize waste and cost.

 

The Role of Procurement in the Supply Chain

Procurement is often considered the first step in the supply chain, plays an integral role in an organization's operations. It is the function responsible for obtaining the necessary goods and services, including raw materials and other essentials, for the business's supply chain

The procurement process begins with identifying the company's needs, which could range from materials required for production to office supplies needed for daily operations.

Once the needs are identified, procurement professionals conduct market research to find suitable suppliers who can fulfill these needs. This process involves understanding the market dynamics, evaluating supplier capabilities, and comparing product quality and prices.

Direct procurement from external suppliers forms a significant part of this role. Procurement managers must negotiate with these suppliers to obtain the necessary goods and services at the most favorable terms.

This includes contract negotiation, where procurement professionals need to ensure that terms of the agreement are beneficial for the organization, including aspects like price, quality, delivery time, and payment terms.

 

Reducing Costs

An essential aspect of procurement is cost reduction. Procurement professionals have a direct impact on a company's bottom line as they control the cost of goods and services purchased.

They use various strategies to achieve this, such as bulk buying, long-term supplier contracts, or working with suppliers to identify cost-saving opportunities.

Another crucial role of procurement in the supply chain is ensuring quality control. Procurement professionals must ensure that the goods and services procured meet the desired quality standards.

This involves setting clear quality expectations with suppliers, regularly assessing supplier performance, and dealing promptly with any quality issues that arise.

The role of procurement in the supply chain is multidimensional. It goes beyond mere purchasing, involving strategic activities that significantly contribute to an organization's efficiency, cost-effectiveness, and quality assurance.

 

Understanding the Supply Chain Network

A supply chain network refers to the interconnected system of individuals, resources, activities, and technologies involved in the production, distribution regime and sale of a product. This network spans multiple stages, from the acquisition of raw materials to the distribution of finished products to the end customer.

At the heart of the network are the manufacturers. They transform raw materials into finished goods, guided by market demand and production capabilities. Manufacturers play a vital role in the network as they directly influence product availability, quality, and cost.

Wholesale warehouses form another essential link in the network. They serve as storage hubs, holding inventory of finished goods until they are needed in the market. They offer sufficient volume flexibility, allowing for adjustments in supply and demand without significant impact on production or retail operations.

Warehouses also have a significant role in inventory control. By monitoring stock levels and keeping track of product turnover, they help maintain a balance between demand and supply, avoiding stock-outs and overstock situations. Proper inventory management in warehouses can lead to significant cost savings and improved customer service levels.

Logistics providers are the engines that propel goods through the network. They are responsible for transporting raw materials to manufacturers and moving finished goods from warehouses to retail outlets or directly to the customer. Logistics personnel ensure that goods reach the right place at the right time, contributing to efficiency, cost-effectiveness, and customer satisfaction in the process.

In the high tech sector, for example, supply chain teams have to coordinate with various suppliers, manufacturers, and other parties to manage the production and distribution of complex products. Such cross-functional collaboration is essential for a well-functioning network.

Understanding the network is key to grasping the complexity and interconnectivity of the supply chain process. Each entity in the network has specific roles and responsibilities and contributes to the overall supply chain's effectiveness and efficiency. The supply chain manager's task is to ensure that these various components work seamlessly together to fulfill the organization's requirements.

 

The Procurement Function in Business Operations

Procurement is an indispensable function in business operations, acting as the backbone that facilitates smooth production and processes. Procurement managers carry out critical tasks, each of which contributes significantly to the company's overall operations and goals.

One key responsibility is contract negotiation with suppliers. This is not merely about getting the lowest price but also involves securing favorable terms concerning delivery schedules, payment terms, and quality specifications. Effective contract negotiation can contribute to reducing a company's freight costs. For example, a procurement manager might negotiate a deal where the supplier bears a portion of the transportation cost or provides volume discounts.

Market research is another essential task within the procurement function. Through this process, procurement professionals stay informed about market trends, potential new suppliers, and pricing dynamics. This enables them to make data-driven decisions that can lead to cost savings and improve the efficiency of procurement processes.

Procurement managers also contribute to improving customer service levels. By ensuring a steady supply of high-quality raw materials and services, they indirectly impact the quality and availability of the company's products or services.

If the procurement team secures high-quality inputs and maintains stable supply chains, the company can meet its commitments to its customers more reliably and efficiently, thereby enhancing customer satisfaction.

Strategic supply chain management and procurement can lead to significant benefits for businesses. An efficient supply chain process reduces systemwide inventory and helps maintain sufficient volume flexibility. Efficient procurement and supply chain processes can lead to significant cost reductions, improving a business's overall financial health.

 

American Public University’s Bachelor's Degree in Supply Chain Management

American Public University (APU) offers an industry-relevant Bachelor's Degree in Supply Chain Management that provides students with a comprehensive understanding of the critical components of the supply chain process.

The curriculum has been carefully designed to meet the educational needs of individuals interested in developing their knowledge of supply chain strategy, and their potential place in today's business ecosystem.

The program delves deep into the aspects of the supply chain management process, including procurement, logistics, quality control, and inventory control. It helps to equip students with a robust understanding of supply chain networks and the typical tasks involved in the procurement and supply chain processes.

One of the defining features of APU’s program is its commitment to developing students' analytical and problem-solving skills.

Students learn to evaluate complex issues related to supply chain management, identify potential solutions, and implement strategies that typically align with an organization's supply chain requirements. The curriculum encourages students to apply their knowledge to real-world scenarios, thereby helping to build practical skills alongside theoretical understanding.

Students at APU are exposed to contemporary supply chain and procurement practices, strategies, and technologies. This program offers students the opportunity to study supply chain management from a global perspective, addressing the influence of globalization on supply chain networks and highlighting the importance of cross-functional collaboration in achieving supply chain efficiency.

Furthermore, the program is enriched by the expertise of faculty members who bring professional supply chain management experience to the classroom. They guide students through the intricate aspects of both supply chain strategy and procurement, helping to provide students with context and insights that often stem from their own professional experiences.

 

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