Written by Marijn Overvest | Reviewed by Sjoerd Goedhart
Fact Checked by Ruud Emonds | Our editorial policy
Procurement vs Supply Chain — Decoding Key Differences
Key takeaways
- Procurement focuses on acquiring goods and services, while the supply chain focuses on coordinating supplier management and ensuring customer satisfaction.
- Procurement refers to the first stage of supply chain, whereas supply chain refers to the end-to-end process.
- Through process optimization, procurement and the supply chain each plays distinct roles and functions that help the business stay afloat.
The intricate web of the business world is constantly evolving, driving more people to its idea but never really understanding much about it, and less to its subsidiary concepts like procurement and supply chain management.
Often, you may interchange the two because there are only slight but distinct differences between them. However, these are unique concepts, where each plays a crucial role and serves a different responsibility in ensuring the smooth flow of acquiring goods and services to delivering them to their final destinations.
In this article, we will delve into the key differences between procurement and supply chain management, shedding light on their respective unique functions and how important they are to business success.
Procurementvs. Supply Chain
Here are the 3 key differences between procurement and supply chain management:
What is Procurement?
In simplest terms, procurement is a process of purchasing and acquiring goods and services through sourcing suppliers, leasing, and other legal works of contracting. Its primary purpose is to source resources with utmost efficiency at the best possible cost without compromising quality and durability. However, it does not stop there.
To limit the complexity of its entire process, leaders in the business industry oftentimes do not extend the lens on how to view procurement as a whole. To better understand how it works, you should keep in mind that without it, business operations would be unsuccessful.
It is not merely sourcing suppliers and purchasing. It also includes a lot of planning, foreseeing market trends, monitoring and evaluating contract administrations, and even identifying the consumers’ needs. It is also non-negotiable that you ensure sustainability and efficiency for your procurement tactics in order for your business to run smoothly.
Procurement: Key Characteristics
To better differentiate procurement from supply chain, there are some qualities it possesses that a supply chain, essentially, is not responsible for. The following are procurement’s key characteristics:
1. Risk Mitigation
Procurement departments should be able to assess and manage risks regarding supplier dependencies and market fluctuations to ensure a continuously smooth flow of the supply chain.
2. Strategic Sourcing
Experts in the procurement field are expected to strategically assess potential suppliers in the consideration of their product quality, cost, reliability, and capacity to be able to build life-long relationships that benefit both organizations.
3. Cost Management
In relation to strategic sourcing, procurement teams should also be able to actively monitor market trends and engage in healthy negotiations to secure favorable and fair prices, in which optimizing cost efficiency in the absence of sacrificing quality.
What is a Supply Chain?
Fundamentally, supply chain management oversees the entire flow of goods and services from the procurement to their delivery. Its primary goal is to procure products and deliver them to their final destination with little to no hassle. It is to create a seamless and responsive network that delivers value to customers while minimizing costs and risks.
Moreover, systematic management also includes planning and controlling the efficient flow of goods and services. It also involves the logistics of the origin of goods and services, product development, fulfillment of orders, distribution networks, customer service, and tracking information.
Supply chain management also assures consumers of the best products in the most efficient production processes. You should be able to provide your customers with products that hold only the best value to ensure satisfaction.
Supply Chain Management:Key Characteristics
While procurement focuses on sourcing and the early stages of the supply chain, the latter concentrates on more intricate processes. Here are the 3 key characteristics of the supply chain:
1. Inventory Optimization
Supply chain management teams are responsible for maintaining great balance between inventories to meet demand, and minimizing excess inventory in order to prevent costly holding expenses.
2. Integration
Supply chain management experts should require seamless integration between various departments within an organization, as well as with external suppliers, to better optimize the flow of goods.
3. Continuous Improvement
As leaders in the field, supply chain managers analyze data, assess performance metrics, and implement process improvements to enhance efficiency, reduce costs, and improve overall customer satisfaction.
Procurementvs. Supply Chain Management
While procurement and supply chain management are related concepts, they serve unique purposes within a business ecosystem. Procurement primarily focuses on the efficient acquisition of goods and services from external sources, while supply chain management on the other hand, encompasses a broader scope, including the coordination and execution of all activities involved in delivering products and services to customers.
They both play integral roles in achieving operational excellence and competitive advantage for business. Thus, understanding the key differences between them is essential so that you may better optimize your supply chain processes to bag sustainable growth in today’s dynamic and competitive market.
Procurement vs Supply Chain Management:Key Differences
There are main differences between procurement and supply chain management. Here are the three key differences both terms have:
1. Scope and Focus
The main difference between procurement and supply chain management lies in their scope and focus. Procurement is rather concentrated on acquiring goods and services from external sources, the early stage of the supply chain. It is primarily concerned with supplier selection, contract negotiation, and cost optimization to ensure the timely availability of required resources.
On the other hand, supply chain management encompasses the entire end-to-end process, from purchasing raw materials to final product delivery and post-sales support. It highlights hassle-free coordination between multiple stakeholders and develops customer satisfaction.
2. Collaboration
One of the procurement’s goals is focused on building and managing exemplary relationships with external suppliers to secure the best terms and conditions.
In contrast, supply chain management engineers collaboration and communication between various internal departments and external partners to ensure an integrated and efficient supply chain network.
3. Objectives
The ultimate goal of procurement is to obtain the required resources at the best possible value, without compromising quality or timely delivery.
On the contrary, supply chain management aims to create a responsive and agile network that delivers value to customers, minimizes costs, and maximizes efficiency across all stages of the supply chain network.
Conclusion
Procurement and supply chain management are both vital components of modern business operations, each serving unique and distinct purposes.
Procurement focuses on acquiring goods and services from external suppliers efficiently and cost-effectively, ensuring the timely availability of resources. While on the other hand, supply chain management encompasses the entire end-to-end process, including procurement itself, production, logistics, and distribution, with the goal of optimizing efficiency and customer satisfaction.
Understanding the differences between procurement and supply chain management is non-negotiable for organizations to leverage their strengths effectively. By recognizing the unique roles and responsibilities of each of their functions, businesses can design robust strategies that drive success, enhance competitiveness, and foster sustainable growth in today’s dynamic and ever-evolving business landscape.
Frequentlyasked questions
What is procurement?
The procurement process is the first or the earliest stage in supply chain management.
What is the supply chain?
Supply chain is a flexible and fluid management of everything that goes in and out of your company to ensure that your customers get their deserved value.
What is the difference between the procurement process and the supply chain?
Although often interchanged, procurement is only a part of the entire network of the supply chain management.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
