A guide to Procurement and Supply Chain Management

Recent history has shown that global supply chains and procurement have become increasingly complex to manage and have tested the abilities of organisations, and governments, to better manage these essential services.

Whilst they are interlinked, supply chain management and procurement are two separate things. In this guide, we are going to closely look at what both procurement and supply chain management is, the differences between the two and why they both matter.

eXceeding is a procurement consultancy that was founded on the principle of providing impartial, best practice, procurement advice to organisations of all shapes and sizes. Working with both the public and private sector, eXceeding has years of experience in delivering procurement solutions to the marketplace.

What is Procurement?

Procurement can be direct, indirect, reactive, or proactive in nature. It is a defined structure, method and technique used by organisations to streamline their purchasing processes of goods, works and materials whilst reducing costs, establishing relationships with suppliers and improving time efficiency in the process.

Procurement is about understanding the needs of the organisations and setting out policies that govern the choice of suppliers, products or services, as well as the methods and procedures that will be used to communicate with their suppliers. Procurement is about selecting the suppliers, negotiating contracts to include agreements on turnaround times and budget requirements.

The procurement process involves:

• Identifying customer and supplier requirements
• Choosing the right tools and processes to communicate with suppliers
• Getting together the information for proposals and requests for quotes
• Setting policies for evaluating proposals, quotes, and suppliers

Managing your procurement processes ensures that all items and services are properly acquired so that projects and processes can proceed efficiently and successfully.

Public procurement contracts (i.e., hospitals, schools, civil service), follow a strict set of rules and regulations. Public procurement law regulates the purchasing by public sector bodies and certain utility sector bodies of contracts for goods, works or services.

There are many different rules that you must follow in order to submit applications for public procurement contracts. Many of which can be found in this government guideline.

Procurement Principles

There are five principles that govern what procurement is. They include;

1. Value 
   Procurement should be driven by value for money. What kind of value is the organisation going to get selecting the particular vendor? What offers are available for early repayment? This is all centred around price to the supplier/buyer.
2. Open Competition
   Procurement should be open to free and fair competition. From using systems like open tender invites to RFPs.
3. Transparency and Ethics
   In order to avoid fraud or the potential of corruption, procurement should be transparent and ethical. Internal organisation codes of conduct and ethics should govern procurement, as well as additional external laws and regulations, if applicable.
4. Accountability
   There is a need for accurate record keeping that supports accountability. At every stage of the procurement process, every individual involved must be accountable.
5. Equity
   Equity in the procurement process is driven to show that opportunities are equal and fair.

What is a Supply Chain?

A supply chain is however different. A supply chain is a network of manufacturers, suppliers, outsourcing organisations, logistics providers and other people who are involved in getting your product, or service, in the hands of a customer.

A supply chain not only encompasses raw material sources, transportation and warehousing – it also includes all of the tasks and activities involved in moving the product.

What is Supply Chain Management?

Supply chain management (SCM) is the process that ensures all the suppliers in the chain are maintaining the desired level of quality of production. Supply chain management is tasked with understanding when products will be ready when needed and equally reducing inventory at the same time. Supply chain management is about referring to the range of activities from procurement to delivery.

Supply chain management is equally concerned with operational performance and resolving issues. Effective supply chain management is concerned with the optimisation of all aspects of a supply chain.

Differences Between Procurement and Supply Chain Management

Procurement refers to the process starting from an identified purchasing need up to the purchase delivery and payment – but no further whilst Supply Chain Management starts with procurement at the first step in the process extending through manufacture and supply of finished products up to final delivery to the consumer.

Here are some other main differences between procurement and supply chain management;

• Procurement is only the first stage in the overall supply chain journey.
• Procurement is the process of getting goods and materials your company needs, but supply chain management is the method of transforming those goods into products and distributing them to customers as efficiently as possible.
• Procurement focuses on sourcing while supply chain management focuses on delivery.
• Procurement enables production while supply chain management also includes manufacture, distribution and delivery.

Why Procurement is Important in Supply Chain Management

Procurement is the first step of the supply chain management process, in that regard, everything that supply chain management looks to accomplish can only do so based on how well the procurement process has been.

Critically, procurement helps the overall Supply Chain Management process and it does so by;

• Delivering value from suppliers
• Helps support efficient inventory management and control
• Good procurement management ensure that quality control is maintained
• Develop lead time optimisation by having the right materials in the right place at the right time.

In Summary

Procurement refers to the process starting from an identified purchasing need up to the purchase delivery and payment, whilst Supply Chain Management starts with procurement at the first step in the process extending through manufacture and supply of finished products up to final delivery to the consumer.

Supply chain management is about referring to the range of activities from procurement to delivery. Combined they are an essential part of managing the needs of an organisation in delivering goods, works and services and procurement helps increase the quality control as well as support efficient lead time optimisation for the organisation to succeed.

At eXceeding we can help organisations get to grips with their procurement processes and create a strategy that suits them to deliver not only cost savings, but also a streamlined process, saving time and reducing human error in this field. With over a decade of experience and helping global brands such as UNICEF, BGL Group and YMCA  improve their procurement strategies, why not drop us a line to see how we can help you achieve your goals.

Check out our procurement ebook for more information about procurement and how we can help deliver value to your business.