The Difference Between Procurement and Supply Chain Management

Is there any difference between procurement and supply chain management? Well, yes! In as much as both concepts may be related, there lies between them a distinctive difference.

Understanding the procurement and supply chain management processes and how they both operate helps build a resilient and sustainable business that will remain unmoved and always surpass your customers’ expectations. On the other hand, you can also learn more about indirect procurement.

Today’s post will help us identify the critical disparities between both terms and clearly explain why you shouldn’t use these terms interchangeably.

Everything you need to know about procurement

In a nutshell, procurement is simply acquiring goods your company needs for the smooth running of your business model. It is the summation of all efforts to discover, analyze, and receive your business’s supplies to function effectively.

This ranges from sourcing for supplies, getting suppliers, drafting and sealing contracts, managing suppliers, settling supplier invoices as and when due, etc. Procurement, however, goes far beyond mere purchasing of supplies needed to run your company’s day-to-day operations. Most companies automate the process with procurement management, that helps optimize procurement processes, improve supplier relationships, and drive operational efficiency. Look at Coupa’s procurement platform solution.

Instead, it is more concerned with what happens end-to-end, from when your business determines that a supply is needed until the necessary framework to deliver and continue delivering is made available.

What is a supply chain?

Generally, a supply chain deals with the network of people, entities, information, and resources involved in producing a specific product and ensuring that the product gets to the hands of the final buyers (your customers). Such people include your manufacturers, suppliers, and logistic service providers.

Therefore, your supply chain comprises those who gather raw materials for your business, the wholesale warehouses working with you, the logistics companies, and all functions that contribute to moving your product. All these functions result in the sourcing, procurement, quality control, and successful marketing of your products.

A supply chain can be juxtaposed to a computer and procurement its key components. With these in mind, we can now quickly define the term Supply Chain Management.

Supply Chain Management

So if your supply chain is made up of the people directly involved in producing and delivering your products, what then is supply chain management? Simply put, supply chain management (SCM) is the method of managing the fundamental factors involved in getting your products to your customers as efficiently as possible.

SCM is the act of professionally managing your supply chain in order to ensure that it is operating at its peak performance. This means that both your suppliers and manufacturers maintain the desired quality and standard of production.

 The main goal of supply chain management is to reduce inventory to ensure that all your products are readily available as and when due.

Critical differences between procurement and supply chain management

Recall quickly that procurement is the method of acquiring the materials you need to run your business operations successfully.

Supply chains are those involved in making that happen and getting your goods to the final consumers, while supply chain management, on the other hand, encompasses how you manage those involved, here is an interesting article about supplier risk management written by the team at gatekeeperhq.com.

That being said, below are some of the key differences between procurement and supply chain management:

Different names and functions

Procurement lays more emphasis on input, while supply chain management’s primary focus is on output and delivery of products. SCM deals with managing all that it takes to deliver your products and services to your customers efficiently.

The job of a procurement professional is done as soon as your company has the required goods. However, the supply chain manager’s role encompasses the process from getting the raw material stage until the final product is successfully delivered to the end-users.

Different roles in production

It is essential to state the different roles both terms play in production. Procurement supports your production, while supply chain management encapsulates the production and distribution of your goods and services.

 Procurement is a significant support function in production within your business management equation, as it’s chiefly concerned with making sure that there is a constant flow of the supplies your business needs to process into finished products.

In contrast, SCM is the actual function supported by procurement.

In other words, supply chain management is made up of how supplies are processed into finished goods and distributed to your customers.

One is a branch of the other.

Earlier, we compared SCM to a computer and procurement its part. Well, let’s take that analogy a step further. A computer’s primary function is to analyze, process, display and manage data. But the data has to be put in through its parts like keyboard and mouse. Without these parts, there’ll be no data to show or manage. The same can be said for procurement and supply chain management.

Procurement deals with the acquisition of supplies; supply chain management comprises all that. We can view procurement as a microcosm within the much wider macrocosm (in this case will be the supply chain management).

Procurement solely deals with building supplier relationships, managing them, and ensuring that they can be used as leverage to deliver the supplies your business requires to function. Supply chain management covers all that in its wide bracket and much more.

 Despite the disparities between procurement and supply chain management, there are quite a few similarities. These include but are not limited to:

■ They both have to be efficiently managed to boost your business operations.

■ They always play as internal operators as their core remains within your busines.

■ Procurement and SCM play vital roles in meeting your business’s targets and realizing its goals.

■ They both need strong supplier relationships to operate smoothly.

Take-Home

You can now see the need to stop using both terms interchangeably by highlighting their differences and explaining how they function in your business.

Procurement is simply the method of purchasing the goods and services your company needs; supply chain management is the infrastructure needed to help you acquire those goods.

Supply chain management should, as a result, be considered as one of the many responsibilities of your procurement team.

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