The Difference Between Procurement and Supply Chain Management

Understanding the difference between procurement and supply chain management is crucial, as these terms are not interchangeable but they often get mixed up.

Procurement is the process of acquiring the goods your company needs for its business model. Supply chain management is the process of turning those goods into products and distributing them to customers as efficiently as possible.

In this guide, we’ll explain the differences and the relationship between supply chain management and procurement. But first, let’s take a quick look at the roles that procurement, supply chain, and supply chain management play within an organization.

Table of Contents

 

What is Procurement?

Procurement is the process of finding and acquiring the goods and services your company needs to fulfill its business model. 

In order for a company to make a profit, the cost of procuring goods must be less than the amount it can sell the goods for, minus whatever costs are associated with processing and selling them.

Hence, the goal of procurement is to ensure that the company (i.e. the buyer) receives goods, services, or works at the best possible price. 

This means that assessing quality, quantity, time, and location are a big part of a procurement manager’s job, along with negotiating to find the best available pricing (and savings) for their company.

Here are some of the tasks involved in the procurement process:

    • Developing standards of quality 
    • Financing purchases
    • Creating purchase orders
    • Negotiating price 
    • Buying goods
    • Inventory control
    • Inventory management
    • Disposal of waste products (e.g. packaging)
    • Cost-benefit analysis or cost-utility analysis

It’s also important to note that companies can engage in both direct procurement and indirect procurement. Direct procurement involves expenditure on goods and services that directly impact the company’s bottom line, whereas indirect procurement is expenditure on day-to-day operations and other requirements that do not have a direct impact on company profit.

In the overall supply chain process, procurement’s responsibilities stop once your company has possession of the goods.

Who Oversees Procurement?

Companies will typically choose to appoint a procurement manager (or even a procurement team) to oversee the function of procurement. Whereas other companies (particularly software companies) will often assign procurement responsibilities to an office manager or operations manager.

Generally, a procurement manager is responsible for:

  • Finding new suppliers
  • Locating and acquiring goods and services
  • Overseeing sourcing activities
  • Negotiating terms and conditions
  • Monitoring supplier performance and inventory levels
  • Drive cost-saving initiatives
  • Make buying decisions under conditions of scarcity

Depending on their company’s size and setup, a procurement manager may also oversee and manage purchasing — an operational role that is often delegated to a purchasing manager in larger organizations.

Supply Chain Definition

A supply chain is the network of entities, people, information, resources, and functions that produces a specific product and distributes it to the final buyer. Understandably, a company’s supply chain will differ based on the nature of the products or services it sells.

Supply chains can include entities like:

  • Raw material gatherers
  • Vendors
  • Warehouses
  • Producers and manufacturers 
  • Transportation companies
  • Retailers
  • Distribution centers
  • Wholesale warehouses
  • In-house staff
  • Stock rooms
  • Even the teenage trainee working the register 

Supply chains can also include the tasks and functions that contribute to moving that product, such as quality control, market research, procurement, strategic sourcing, operations, distribution, finance, and customer service.

What is Supply Chain Management?

So, if a supply chain is the network of manufacturers, suppliers and logistics providers needed to get a specific product to your business and its customers, then what is supply chain management (SCM)?

At its core, supply chain management is the act of overseeing a supply chain to improve the flow of goods and services and transform raw materials into products for the end buyer.

Supply chain management is a key part of a company’s overall success, as improvements to an organization’s supply chain management strategy can:

  • Increase margins and annual revenue
  • Improve company’s ability to compete
  • Influence customer satisfaction 
  • Optimize rate of supply
  • Reduce costs in several areas of the organization

Who Oversees Supply Chain Management?

Typically, a supply chain manager will oversee all aspects of a company’s supply chain by coordinating the logistics of:

  • Supply chain planning and strategy
  • Determining the best source of raw materials or services
  • Improving efficiency and productivity of the manufacturing process
  • Delivery and logistics
  • Supplier quality
  • Overseeing the return of defective or unwanted products

 

The goal of a supply chain manager is to implement supply chain management best practices and optimize a company’s supply chain strategy in order to:

  • Improve the flow of goods and services
  • Minimize shortages
  • Keep costs down
  • Make recommendations that improve productivity, quality, and efficiency of company operations
  • Maintain the desired quality of production
  • Ensure that all suppliers and manufacturers in the supply chain are engaged in ethical business practices

The latter is a significant issue faced by many organizations today. If a piece (or pieces) of a supply chain isn’t conducting business in an ethical manner (think child labor or environmental damage) then the organization receiving goods from that supply chain can suffer negative repercussions as a result.

Supply Chain Components
Supply Chain

Procurement vs Supply Chain Management: What’s the Difference?

While there is a direct relationship between procurement and supply chain management, the two functions are not interchangeable.

Procurement is the process of getting the goods and materials your company needs, while supply chain management is the process of transforming those goods into products and distributing them to customers as efficiently as possible.

Understanding the difference will help you better leverage the efficiencies and benefits that procurement and supply chain management can bring to your organization.

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24 responses to “The Difference Between Procurement and Supply Chain Management

  1. There’s difference between procurement and vendor management, logistics, supply, etc. Procurement is the raw first step that collects all the material required to start a production!

  2. I am new to Supply Chain Management, and I was assigned to be the Acting Manager for the Supply Chain Dept. So I was looking for some basic information, and luckily I found it here.

  3. Just started reading about this field in preparing to pursue a programme towards changing my job. I think I’ve enjoyed the basics you have here. Thanks so much.

  4. There is an unmistakable distinction among obtainment and inventory network the executives. Acquisition “is the way toward getting the merchandise or potentially benefits your organization needs to satisfy its plan of action. In the general production network process, acquisition stops once your organization has ownership of the merchandise.

  5. There is a distinct difference between procurement and supply chain management. Procurement “is the process of getting the goods and/or services your company needs to fulfill its business model. In the overall supply chain process, procurement stops once your company has possession of the goods.

    1. I am a Student pursuing a degree in Supply Chain,I take this to be key to my career,thanks for this summary,it has answered alot of questions at once.

  6. A warehouse is a commercial building for storage of goods while an inventory is a complete list of items such as property, goods in stock, or the contents of a building

  7. Hello,

    I’m still not clear about the difference between supply chain and Procurement.

    In supply chain definition, again procurement is included in the activities. How does it differ ?

    Please help me understand the difference.

    Thanks

    1. A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer while procument is the act for sourcing raw materials from suppliers worldwide and bringing them into the organisation to enable the production of goods for customers

  8. It’s absolutely useful for me as I’m learning about Supply Chain Management. How about the Inventory and Warehousing as I’m a little bit confused between those? If possible, I want you to explain about it too.
    Thanks in advance.!!!

  9. In some of the projects I have been involved in the definition is not quite as clear, it may involve many part of the organisation to work together to build the requirement which then gets procured usually at a firm price but still involve the project management parts of the organisation to oversee and manage dependencies, and ensure that the supplier delivers on their project milestones and final deliverable. In this case I would argue its more supply chain management than just procurement even though the final outcome has been defined similar to just procuring a product or service.

  10. wow….that has answered so many questions which was in my mind about differences and relation between Procurement and Supply Chain …..with 20+ years of professional experience in Procurement and through this article it is much more clear for me now where Procurement Profession fits in the process. Thank you ….this was a very informative article.

    1. Procurement is a function of Supply Chain Management just like Operations, Logistics, IT. You need to choose between the functions of SCM mentioned, regardless of what you select, you are selecting SCM in a broader aspect.

      1. The only clarity truly needed is that Procurement is a function of Supply Chain Management and NOT Finance…in many organizations procurement still rolls up to the finance function and this may never change. This is mostly due to many organizations not investing into SCM specific departments, however, this should not be confused with procurement being a function of Finance..

      2. Agree with Andreas! Procurement should roll up to SCM for most organizations. Companies that don’t invest in SCM will still have purchasing needs and will need to report into finance or ops. Many mature companies eventually adopt a hybrid reporting model where procurement reports to a functional department head while passing their data to ops or finance.

    2. We cannot say that one is good. Without procurement, the supply chain will not exist .The purpose of a business is to create wealth for the owner. A company can only create wealth by creating a customer base and out competing its competitors in an industry. Considering this, the concept of supply chain management becomes a better approach as every company must ensure timely delivery of products to ensure customer satisfaction and maintain customer loyalty. In making the supply chain work, procurement is conducted at every tier/level. Consider a simple supply chain of raw material supplier, manufacturer, distributor, retailer and consumer, say for apple juice. We will have the apple farm (raw material supplier), the apple juice manufacturing company(Manufacturer), a distributing company(distributor), and a retailer with the consumers at the very end of the chain. The procurement function runs along the chain to get it to function. Remember that the juice manufacturer has to enter into a contract with the apple farm to acquire raw material(apples), the same is done between the manufacturer and distributor and between the distributor and retailer who finally sells to the consumer. The consumer could also be an organization buying apple juices to serve at a workshop for its employees. Here, all of the contracts signed to move the raw materials to the manufacturer, to distributor and to retailer who then delivers to the market are made possible by procurement. The procurement function is therefore at every level of the Supply Chain to get the supply chain functioning. Without procurement, there will be no supply chain. The two are different concepts, but Procurement is a subset of Supply Chain Management.

    3. The purpose of a business is to create wealth for the owner. A company can only create wealth by creating a customer base and out competing its competitors in an industry. Considering this, the concept of supply chain management becomes a better approach as every company must ensure timely delivery of products to ensure customer satisfaction and maintain customer loyalty. In making the supply chain work, procurement is conducted at every tier/level. Consider a simple supply chain of raw material supplier, manufacturer, distributor, retailer and consumer, say for apple juice. We will have the apple farm (raw material supplier), the apple juice manufacturing company(Manufacturer), a distributing company(distributor), and a retailer with the consumers at the very end of the chain. The procurement function runs along the chain to get it to function. Remember that the juice manufacturer has to enter into a contract with the apple farm to acquire raw material(apples), the same is done between the manufacturer and distributor and between the distributor and retailer who finally sells to the consumer. The consumer could also be an organization buying apple juices to serve at a workshop for its employees. Here, all of the contracts signed to move the raw materials to the manufacturer, to distributor and to retailer who then delivers to the market are made possible by procurement. The procurement function is therefore at every level of the Supply Chain to get the supply chain functioning. Without procurement, there will be no supply chain. The two are different concepts, but Procurement is a subset of Supply Chain Management.