Okay, let’s face it. We use a lot of the terms associated with the procurement world interchangeably. Procurement! Purchasing! Supply chain management (SCM)! They’re all the same!
These terms are related, of course, but they aren’t interchangeable. There is a distinct difference between procurement and supply chain management.
Procurement definition: “is the process of getting the goods and/or services your company needs to fulfill its business model. Some of the tasks involved in the procurement process include developing standards of quality, financing purchases, creating purchase orders, negotiating price, buying goods, inventory control, inventory management, and disposal of waste products like the packaging. In the overall supply chain process, procurement stops once your company has possession of the goods. To make a profit, the cost of procuring your goods must be less than the amount you can sell the goods for, minus whatever costs are associated with processing and selling them.”
Supply chain definition: “consists of everybody involved in getting your product in the hands of a customer. It includes raw material gatherers, manufacturers, transportation companies, wholesale warehouses, in-house staff, stock rooms and the teenager at the register. It also includes the tasks and functions that contribute to moving that product, such as quality control, market research, procurement, and strategic sourcing. Using the above analogy, the supply chain can be considered the entire chair, while procurement and sourcing are parts of the chair.”
Procurement is the process of getting the goods you need, while supply chain is the infrastructure (extensive, in many cases) needed to get you those goods.
Supply Chain Management (SCM)
So, if a supply chain is the network of manufacturers, suppliers and logistics providers needed to get a specific product to your business and, subsequently, your customers…then what is supply chain management?
At its core, supply chain management is the act of overseeing and managing a supply chain to ensure it is operating as efficiently as possible. That means, amongst other things, ensuring all suppliers and manufacturers are maintaining the desired quality of production and that both camps are engaged in ethical business practices.
The latter point is a significant issue faced by many organizations today. If a piece (or pieces) of a supply chain aren’t doing business in an ethical manner (think child labour or environmental damage) then the organization receiving goods from that supply chain can suffer negative repercussions as a result.
Supply chain management should ultimately be considered one of many responsibilities faced by a procurement function. By highlighting these differences, we will get a better, more fulsome understanding of the intricate procurement world. And hopefully, we’ll stop using terms interchangeably when we shouldn’t.