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The Difference Between Procurement and Supply Chain Management

The Difference Between Procurement and Supply Chain Management

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!

No…not quite.

These terms are related, of course, but they aren’t interchangeable. There is a distinct difference between procurement and supply chain management.

From azcentral.com:

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.

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

  1. 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.

  2. 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.

  3. 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.

  4. 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

  5. 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

  6. 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.!!!

  7. 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.

  8. 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.