Procurement vs. Supply Chain Management

Businesses and organizations that know the difference between procurement and supply chain management is important because it affects how organizations manage their resources and costs. Procurement management and the supply chain process that follows are two distinct but important phases of operation for many retail and manufacturing companies. For these types of organizations to make a profit, they need to understand what goes into procuring goods and services and then effectively prepare and deliver them for consumer use.

Read on to learn about the roles that procurement and supply chain management play in an organization, the key differences between them, and how each contributes to an organization’s success.

Procurement is the process of sourcing and acquiring the goods an organization needs for eventual sale and delivery to end users. These goods typically include the raw materials that will become finished products through the supply chain. Many elements go into procurement, including analyzing costs and purchasing goods from suppliers. Procurement must occur before any good or service enters the supply chain.

Supply chain management involves supervising all the steps that take a raw material and turn it into a usable product ready for the market. Managing a supply chain means overseeing production, shipment, and distribution of goods and services. Many organizations employ one or several supply chain managers to direct and improve the flow of products and services in the chain. Supply chain management has an important influence on an organization’s revenue, rate of supply, customer satisfaction, and more.

Both procurement and supply chain management play crucial roles in an organization’s long-term success.

Procurement mainly concerns sourcing and purchasing goods but also includes other essential processes. These essential processes include determining the quality and quantity of goods, understanding proper inventory control and management, and negotiating pricing with suppliers. To generate a supply chain, an organization first needs to procure the necessary goods and materials relevant to their industry. Procurement managers or purchasing managers need to determine the quality and quantity of goods before they buy from suppliers. They should also understand proper inventory control and management and be prepared to negotiate pricing with suppliers.

Many organizations hire procurement managers or whole procurement teams, depending on their size or goal. These managers often use dedicated procurement software to make their jobs easier and more streamlined. These software programs help determine the prices that an organization can afford for goods without disrupting the spending involved in subsequent supply chain management. Responsibilities of procurement end once enough goods are sourced and bought.

Supply chain management is what happens after procuring all necessary goods and materials. Managing a supply chain involves carefully overseeing all phases of the supply chain, from manufacturing to final delivery.

Typically, the primary goal of supply chain management is to optimize the flow of products in the chain. This means identifying and eliminating pain points, minimizing supply shortages, maintaining quality, reducing costs, and more. Following procurement of goods, the bulk of supply chain management deals with manufacturing, distributing, storing, and delivering products or services to consumers.

Both procurement and supply chain management contribute profoundly to an organization’s efficiency, cost savings, visibility, competitiveness, and customer satisfaction. When procurement and supply chain managers implement best practices based on company needs, they help ensure that the production of goods runs smoothly.

Acquiring the right amount of goods at the right time for the best possible price can lower the risk of supply shortages and increase the likelihood of making a profit. Plus, organizations that have control over managing their supply chain can maintain product quality while meeting deadlines. This results in the sale and delivery of goods or services to satisfied customers.

While procurement could be considered a part of overall supply chain management, some key differences help set the two apart:

• Scope. Procurement focuses on the initial acquisition of goods that will then enter the supply chain. Supply chain management is concerned with supervising what comes next: manufacturing, storing, and delivering goods to consumers and, if needed, managing the return of defective or damaged products.
• Objective. The main objective of procurement is to establish a cost-effective and reliable way to source and buy goods from suppliers, while the objective of supply chain management is to ensure those goods become ready for eventual sale and use.
• Timeline. Procuring goods may happen at a faster rate than the rest of the phases in the supply chain. However, procurement and supply chain management should be done concurrently, if possible, to achieve greater efficiency.

In summary, procurement is focused on the initial acquisition of goods, while supply chain management is concerned with the entire process of getting those goods to the end user.

Procurement involves frequent correspondence with suppliers and vendors so that organizations can find the goods they need for their supply chain. In addition to buying the goods, procurement managers or teams also have responsibilities like:

• Performing cost-benefit analyses
• Projecting demand for goods
• Setting up and managing supplier contracts
• Negotiating prices
• Creating purchase orders
• Completing invoices
• Finding new suppliers
• Communicating with other supply chain managers

Careful performance of these procurement responsibilities helps make the rest of the supply chain run smoothly, and it can ensure the timely delivery of finished goods or services. 

At a broad glance, supply chain management shares some responsibilities with procurement, like planning and forecasting demand for goods. But it also deals with all phases of the supply chain once goods are procured. Supply chain managers play an important role in the following:

• Manufacturing goods
• Distributing goods
• Storing products
• Supervising warehouse staff
• Delivering finished products
• Managing inventory levels
• Developing and implementing supply chain strategies
• Interpreting data to identify areas of improvemen
• Tracking logistics
• Communicating with procurement teams

Supply chain management is the indispensable bridge between the initial acquisition of goods and the final sale and delivery of those goods to consumers. 

While there are key differences between procurement and supply chain management, they also share several similarities and are both essential for any business or organization to sell their products or services. In fact, the ways that procurement and supply chain management interact with each other show how deeply linked they are.

The processes of procurement often feed into the broader supply chain. For example, negotiating good prices on raw materials can have a positive effect on an organization’s profit margins. Frequent communication between procurement manager and supply chain manager helps ensure that the right amount of goods are purchased for the right number of consumers at the right time.

These interactions between procurement and supply chain management—and others—typically don’t happen by coincidence but rather a deliberate synergy. Effective coordination between the two can enhance overall business performance.

If you’re interested in executing the duties of a procurement or supply chain manager, you’ll need the right education. That’s where WGU comes in—an online, nonprofit university offering 70+ accredited degree programs in business, IT, healthcare, and education. Included in these programs is a bachelor’s in supply chain and operations management that could be just what you need to reach a fulfilling career.

With no set log-in times for coursework and a learning model that lets you progress as fast as you master the material, there’s no reason to wait. Get started today!