Procurement and Supply Chain Management
Procurement and supply chain management work in parallel for business success. However, there are some stark differences between the two processes.
Procurement is finding and purchasing the goods required for your business. Supply chain management monitors the conversion of raw materials into finished goods. It is logistics and oversees the delivery of products to customers.
Procurement aims to ensure that buyers get the best deals on products and services. A procurement manager must test variables including quality, quantity, time, and place. Negotiation is a crucial part of the procurement process to get the greatest pricing.
In this article, you will learn about the purpose of procurement in supply chain management. Furthermore, you will discover the best strategies of the procurement cycle you can apply to your business operations.
What is Procurement in Supply Chain?
Procurement is a part of the supply chain management process. It is the strategy of acquiring the products and services a business needs for its everyday operations.
This includes locating goods, negotiating deals, and purchasing items. It also involves examining goods and documenting each stage of the procedure. Tendering or competitive bidding frequently plays a role in this process.
The role of procurement and supply chain teams in supply chain management is to ensure the availability of products and services when and where they are needed. Procurement plays a role in the reduction of waste, and the improvement of client satisfaction.
It’s more than a necessity; it is used as an edge over competitors. The process is streamlined to cut costs, energy, and resources.
A successful supply chain manager and procurement team contribute to cost savings and increased corporate profitability. Procurement is a critical component of the supply chain management process. An effective supply chain and procurement department reduce operational expenses.
With the right procurement procedures and supply chains in place, your company can enjoy price reductions and warranties.
Types of Procurement in Supply Chain
Anything needed to produce a final product is direct procurement. The acquisitions of raw materials lead to purchase orders for goods produced by the corporation.
These are items in wholesale warehouses that are necessary for the regular operations of a business. These items don’t benefit the company’s sales. It is the basic resources that enable an organization’s supply chain to function.
This is procuring goods and managing primary products and services required to finish a capital project. Capital goods are manufactured items used to create other consumer goods and services. Workplace equipment is an example of capital goods.
This is the selection quality control and oversight of providers who supply people-based services. Waste disposal is an example of this.
Maintenance, repair, and operating (MRO) procurement
MRO is the procurement function of acquiring goods and services used in support of routine operations. An example of this is when procurement involves office supplies.
Procurement Strategies in SCM
Centralized procurement is when one department oversees all company-wide purchases.
Decentralized procurement enables specific stakeholders to conduct purchases for their division’s distribution functions.
Group purchasing organizations (GPOs) are an association of businesses. They work to maximize the pooled purchases of their participants. GPOs combine their purchases to receive favorable terms for goods and services.
Electronic procurement is finding, ordering, and buying products and services online. It involves conducting business-to-business transactions.
Procurement outsourcing is the assignment of certain critical functions to an outside organization.
Supplier selection and evaluation
Supplier selection is when businesses find, assess, and hire new suppliers. Supplier evaluation rates and accepts prospective suppliers using qualitative and quantitative evaluations.
Supplier relationship management
SRM is an operational responsibility to forge beneficial connections with both raw materials and its external suppliers.
Supplier performance measurement
Supplier performance measurement checks if your supplier performs their duties according to plan.
Contract management is establishing the terms and conditions of the contract negotiation. It also monitors if these terms are followed or not.
Cost reduction tactics are important in procurement processes and supply chain management to the profitability of your business. Strategies include increasing supplier connections, streamlining procurement procedures, and utilizing electronic tools. Your business will be able to strengthen purchases and negotiate better pricing with suppliers.
- Total cost of ownership (TCO) is a measure of how much it will cost to buy, set up, use, and then retire a product. This is important when considering start-up costs.
- Businesses use a cost-benefit analysis to identify all potential costs and profits associated with an initiative. It determines whether a project is financially feasible.
- Spend analysis is collecting, categorizing, and analyzing data on purchases. The aim is to lower procurement expenses, boost productivity, and keep track of compliance.
The majority of the threats to your organization’s overall supply chain management and process may be divided into four major groups: financial, environmental, political, and ethical risks. It is important to assess the level of risk associated with each individual threat.
The four most common approaches to risk mitigation are acceptance, transference, reduction, and avoidance. Some techniques of risk assessment and mitigation tactics your organization may use are making sure stakeholders are continually involved and discussing hazards as they occur. It is beneficial to regularly keep an eye out for possible risks.
Supplier risk management is the process of spotting, evaluating, and minimalizing threats to your company’s supply chain functioning and your company’s profitability. These threats are caused by the supplier. It’s important to identify and assess the various supply chains for disruptions that can affect your organization.
Business continuity planning creates a structure that prevents, minimizes, and recovers from risks to your operations.
Procurement and Supply Chain Metrics and KPIs
Key performance indicators measure the efficiency of your various procurement and supply chain processes. They track all facets of your purchases; this is linked to the performance of your suppliers.
Supplier performance metrics measure the failure rate of the overall supply chain process and network and the overall number of defects. They also assess a number of factors, such as how long it takes to complete products, and common issues in the factory.
There are also methods to measure the efficiency of your own procurement management process. This involves monitoring the time spent under management, cuts to expenditure, and more. It is important to constantly evaluate your procurement efficiency to achieve maximum productivity and profitability.
Additionally, the main concerns of supply chain management are the turnover of stock, the time it takes to complete orders and shipping performance.
Procurement and Supply Chain Ethics
Ethical procurement covers a broad variety of concerns that may have an influence on a company’s ethical and environmental objectives, such as immoral supplier business practices. Adopt a supplier code of conduct to guarantee that your requirements for your suppliers are recorded in a legal document.
Employ anti-corruption methods in your business by taking communal action to combat corruption and immoral actions. Additionally, you can make use of ethical sourcing to only buy from suppliers who consider the impact their products have on the environment and humanity.
Procurement and Supply Chain Talent Management
Procurement and supply chain job roles and responsibilities vary across sectors. In general, they consist of purchasing products, managing relationships with suppliers, and negotiating. They also have to understand the prime objectives of your company, manage policies and ensure that the process from procurement and the final product is sustainable and ethical.
The basic skills and competencies required for procurement professionals are negotiation skills, time management, quality control, and assessing risks efficiently.
The talent management strategies for procurement and supply chain professionals include determining metrics, creating an established employer and consumer brand, and creating a productive culture.
By integrating procurement with other corporate processes like finance, you can enhance efficiency, value, creativity, and collaboration. By matching the organization’s goals and vision with procurement strategies, you can save money, reduce inventory, and eliminate waste while raising productivity.
Supplier cooperation is a strategic approach that entails bringing vendors and suppliers into line with your company strategy. This accomplishes important objectives and maximizes the value of your partnership.
Customer collaboration is the relationship you develop with your consumers. By putting client happiness at the core of your own strategy, you can increase profits and after-sales service. This creates customer loyalty.
Your company needs both an effective procurement strategy and supply chain management to be successful. Procurement is not a simple job; it requires hours of dedicated research in order to source products and negotiate efficiently.
However, a successful procurement service helps a company increase efficiency and become more profitable. Obtaining goods and services at the lowest cost decreases operational costs.
We recommend that you adopt the procurement strategies that will work best with your company. Every business is unique. It’s important to maintain supplier and customer relationships, employ sustainable business practices, manage risks effectively, and collaborate clearly with your team. That’s when you know you’re on the right track.
What are the steps in the procurement process?
Identifying needs, sourcing products, listing and selecting suppliers, negotiating, receiving goods, and contract management.
What are the different types of procurement in the supply chain?
Direct, indirect, capital, services, and maintenance, repair and operating (MRO) procurement.
What is the difference between procurement and supply chain management?
Procurement entails purchasing and transporting goods, while supply chain management entails the necessary infrastructure and processes for delivering them.