Purchasing vs Procurement vs Supply Chain Management. The business world uses these terms associated with the procurement world interchangeably, but is this correct? Are they really all the same?
The answer is no, not quite. These terms are related, of course, but they aren’t interchangeable. Keep reading to clear up the difference between procurement, purchasing and supply chain management once and for all.
1. Let’s start with Procurement.
Procurement is the process of getting the goods and services your company needs to fulfil its business model.
The tasks involved in procurement include:
- The development of quality standards
- Financing purchases
- Negotiating price
- Goods and services purchases
- Aligning purchases to company ethics and policies
- Inventory control
- Disposal of waste products like the packaging
In the overall supply chain process, the procurement function stops once your company has possession of the goods. For a business 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.
Procurement is an umbrella term that includes several core business functions and should form a key role in corporate strategy. Four key aspects are:
- Company Identity
- Market Placement
- Company Capabilities
- Management Issues
Therefore, to be truly effective, procurement needs to have a broad view of company needs, values and direction.
2. Where does Purchasing fit into this picture?
Purchasing is a subset of procurement.
Purchasing refers to buying goods or services and often includes receiving and payment.
The steps related to purchasing within the procurement cycle are:
- Purchase Order Acknowledgement
- Advance Shipment Notice
- Goods Receipt
- Invoice Recording
- Three Way Match
- Payment to Supplier
3. Finally, what is the role of Supply Chain?
A supply chain is defined as:
‘Everybody involved in getting your product into the hands of a customer. It includes raw material gatherers, manufacturers, transportation companies, wholesale warehouses, in-house staff, stock rooms right down to the employee at the register. It also includes the tasks and functions that contribute to moving that product, such as quality control, marketing, procurement, and sourcing.
Using the above analogy, the supply chain can be considered the entire chair, while procurement and sourcing are parts of the chair.’
In summary, 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.
How does Purchasing play a role in Supply Chain Management
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.
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. Predominately it is ensuring that all suppliers and manufacturers are maintaining the desired quality of production and are engaged in ethical business practices.
The latter point is a significant issue faced by many organisations 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 organisation receiving goods from that supply chain can suffer negative repercussions.
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.
Procurement vs Purchasing vs Supply Chain Management – Where are the new opportunities for you?
Every step in the Supply Chain Process is becoming more data-driven. Artificial Intelligence has become an effective way to increase efficiencies and profitability, making comprehensive analysis of data the new norm. Logistics, purchasing and supply chain professionals urgently need to gain relevant qualifications and experience to benefit from the emerging opportunities in modern procurement.
The Diploma of Logistics (TLI50221) offered by The College for Adult Learning give graduates a credible National Accreditation, along with the flexibility to study online at a pace that fits the demands of a busy professional’s career. CAL’s diplomas prepare you to step into a management role immediately upon graduation, fully equipped to succeed in this rapidly evolving and pivotal aspect of business.