Procurement and Supply Chain Management

Procurement and supply chain management are the key aspects of a supply chain that help run a business smoothly. Procurement ensures that the raw materials sourced are of the best quality and at the best price. Supply chain management ensures that supply chain operations run smoothly, such as sourcing raw materials, producing goods, managing inventory, and transporting finished products.

In this article, we’ll learn about procurement and its importance in supply chain management, the key components and the challenges that are involved in the process.

Table of Contents

• What is Procurement?
• Why is Procurement Important in Business?
• Types of Procurement
• Challenges in Procurement
• What is Supply Chain Management?
• Benefits of Supply Chain Management
• Challenges in Supply Chain Management
• Difference Between Procurement And Supply Chain Management
• Role of Procurement in Supply Chain Management
• Conclusion

What is Procurement?

Procurement is the base of a smooth supply chain as it provides the raw materials that are required for the manufacturing of goods. It helps run the supply chain operations of a business smoothly. It includes building relations with the suppliers, negotiating on the prices, equipment purchase, selecting warehouse locations, etc.

For example, a toy company will procure raw materials like plastics, rubber, etc., whereas a car company will procure raw materials like steel, tyres, etc. 

Why is Procurement Important in Business?

Procurement is important for a business to run its supply chain smoothly so that it can manufacture its products efficiently and maintain smooth delivery. With the help of procurement, businesses keep their supplies filled so that they can perform their operations smoothly. A procurement strategy needs to be effective to save manufacturing and delivery costs.

Following are some reasons why procurement is important:

• Avoiding Delays: Procurement, when done at the right time, avoids production delays and ensures effective delivery.
• Relationship with Suppliers: A healthy relationship with suppliers helps negotiate better prices and reduce overall costs.
• Managing Costs: By effectively sourcing raw materials, businesses can save on overall costs.
• Maintaining Quality: Right procurement is important so that wastage can be reduced and product quality can be maintained.

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Types of Procurement

As per the requirements of a supply chain, procurement is of majorly four types:

1. Services Procurement: Some businesses require external agencies or vendors to perform some of their operations, and these services are under Services Procurement. For example: Content Services, Marketing agencies, etc.

2. Direct Procurement: Raw materials that are directly involved in the production of finished goods come under the category of direct procurements. For example, fabric for clothes, wood for furniture, steel for utensils, etc.

3. Indirect Procurement: Raw materials that are not directly involved but are necessary for the production process come under indirect procurement. For example, office furniture, manufacturing equipment, etc.

4. Goods Procurement: Goods procurement is mainly required by organizations. For example, office supplies, software for office work, etc.

Challenges in Procurement

Just like every other process of a supply chain, procurement also involves certain challenges. These are:

• Risk of Unreliable Suppliers: Unreliable suppliers can cause quality issues, so building trust among suppliers and businesses is mandatory.
• Increased Cost: The cost of raw materials is increasing day by day, and businesses struggle to maintain product quality with this increased cost.
• Supplier’s Insufficiency: For smooth procurement, multiple suppliers are required. Working with only one supplier can cause unexpected delays.
• Inefficient Supply Chain: Working with an inefficient supply chain can cause failure.

What is Supply Chain Management?

Supply Chain Management is the process of optimizing the supply chain operations of a business to work efficiently and perform better. SCM includes sourcing raw materials or products, manufacturing goods, managing inventory, transportation and delivery of finished products to customers. The main aim of an optimized supply chain is to ensure that the products reach their customers on time and that the transportation and delivery process is cost-effective.

The main goal of supply chain management is to maintain relations between suppliers, set up efficient manufacturing, and inventory management, and maintain relationships with retailers to improve business efficiency and reduce overall costs.

Components of Supply Chain Management

Following are some of the major Components of Supply Chain Management:

1. Customer Service and Satisfaction are of utmost importance for a business as they ensure retention and order repetition.
2. Procurement of best raw materials to run a smooth supply chain operation.
3. Production of finished goods from the raw materials.
4. Inventory management is the tracking of inventory stocks to avoid shortages or overstocking.
5. Managing Supplier Relationships is important for a business to ensure quality and negotiate better prices.
6. Logistics Management ensures that the goods are stored and moved efficiently for timely delivery.

Benefits of Supply Chain Management

A well-managed Supply Chain Management Process is very beneficial for a business’s manufacturing operations. Some of these benefits are:

• A well-managed supply chain is Cost Effective as it reduces expenses and avoids wastage.
• Supply Chain Management enhances Customer Satisfaction by ensuring timely delivery of goods.
• An optimized Supply chain ensures Efficient Production for a business.
• Reduced wastage of raw materials results in maintaining a Sustainable Environment.
• Supply Chain Management ensures efficient production, which provides an Edge over the Competition.

Challenges in Supply Chain Management

Following are some of the challenges that Supply Chain Management Strategies face consistently: 

• Complex Operation: Multiple Stakeholders can make it difficult to manage the operations of a Supply Chain.
• Variation in Demand: There can be days like festivals when the demand is high; this can disrupt the supply chain if not planned efficiently.
• Delays in Logistics: Delivery of goods can sometimes be delayed because of transportation and storage.
• Increased Transportation Cost: An increase in transportation cost can affect the supply chain because it can impact the overall cost.
• Operational Delays: Supply chain operations can sometimes be delayed because of some natural causes like weather, natural disasters, etc.

Difference between Procurement and Supply Chain Management

The main goal of Supply Chain Management Optimization is to optimize the manufacturing and delivery process of goods, whereas the main goal of procurement is to source the best raw materials to keep the supply chain running.

Procurement Vs Supply Chain Management

Role of Procurement in Supply Chain Management

The role of procurement in Supply Chain Management is crucial as it can ensure the efficient working of the supply chain:

• Timely delivery of the products can be managed by procurement of warehouses in high-demand areas.
• The procurement process ensures that an adequate amount of raw materials is always available to keep the supply chain running.
• It involves building relationships with suppliers and retailers to ensure the quality of raw materials and timely delivery of goods.
• The production efficiency of a supply chain is highly affected by the optimized procurement process.

Conclusion

Procurement is the base step of a supply chain management process. It focuses on the sourcing of raw materials for the supply chain to operate smoothly. Procurement and Supply Chain Management ensure that the supply chain operation is cost-effective and with minimal wastage. Inventory management, logistics and timely delivery of goods are other important traits of supply chain management. Gain valuable insights into supply chain management and register now with our supply chain certification courses.

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