• Dave McGuire

Understanding the Phrase: "Supply Chain"

The Clarksvillian

A year ago, I struggled to find people aware of the phrase "supply chain". The recently disastrous supply chain issues have forced everyone into crash course learning sessions for the topic. If you're still uncertain of the details, below you'll find a quick overview which should help provide a basic understanding.

At its core, procurement logistics is the sourcing of materials needed to create products. Think of this process as a focus on purchasing raw materials, replacement parts, auxiliary supplies, operating supplies, and other items needed for the operations process to work.

Keep in mind that procurement logistics do not just deal with the purchasing of materials. It also oversees storing, organizing, and shipping these materials to and from the warehouse. The procurement logistics staff is also responsible for product sourcing and selection policies, terms and conditions, communication, and purchasing strategies to help keep the cost of acquisition as low as possible.

What Is Procurement Management? Procurement management is the umbrella term for all the processes involved in managing the incoming materials needed for operations. Some of these processes include getting bids from, negotiating, and/or creating contracts with third-party logistics providers.

How Do Procurement and Logistics Management Work Together? The flow of procurement logistics needs to remain open and uncongested. Because the purchasing process becomes inhibited, it could interrupt production efficiency in operational centers and affect product storage in warehouses. The resulting delays may cause potential problems for both distributors and customers alike. Operationally, it is essential for procurement and logistics management to coexist and work together seamlessly to ensure operational costs do not exceed a company’s budget expectations. This is not necessarily a simple task because some companies lack the personnel needed to run these individual processes. Many small companies choose to work with a third-party logistics provider to help manage all the resources necessary to create a smooth-running and successful supply chain. These third-party logistic carriers are the trucking lines waiting at the ports and docks to transfer materials.

Procurement must never be an afterthought in any business. Operators need to have the right raw materials and supplies available as needed. Supply chain operators must know that vendors will be held accountable and adhere to the terms within vendor-supply chain partner service level agreements. Shippers need to know how they will get enough trucks to fulfill their orders. The answers to these questions are found by understanding a few of the top industrial procurement trends to expect.

Supply Chain Management vs. Procurement There are a lot of industry-specific terms involved in the supply chain. Terms like kitting and product fulfillment services, reverse logistics services, and procurement processes are commonly used in this industry. But what do these terms refer to? What is supply chain management and what is the procurement process? Here are some important things to know about these two terms and their major differences. And more than anything else, stop the person speaking and ask them for a clear definition of the word.

How Is Procurement Different from a Supply Chain? Every agent involved in getting your product into the hands of a customer or end-user is known as a "part of a supply chain." This process involves raw material suppliers or gatherers, suppliers, transportation companies, wholesale warehouses, in-house staff, inventory room workers, and cashiers. To make the supply chain run smoothly, functions such as quality control, marketing, procurement, and sourcing must be involved. The supply chain is the entire process, while procurement is a part of it. Procurement is defined as the process of getting the products and/or services your company needs to fulfil its business model. The procurement process involves several tasks, including developing standards of quality, negotiating prices, financing purchases, buying goods, inventory control, and the disposal of waste products. Once your company has possession of the goods, procurement stops. For companies to profit from this process, the cost of procuring products must be less than the amount they can sell the products for, minus the processing and selling costs.

Supply Chain and Procurement: How Do They Work? The supply chain refers to all the moving parts from the time a product leaves the supplier to when it arrives on a customer’s doorstep. Supply chain management activities are all efforts made to improve efficiency and effectiveness across all stages along the way. It covers matters such as when products are distributed, material sourcing, operations quantity, quality testing, product storage, and so much more. Outsourcing your supply chain services allows flexibility to avoid errors in the system - because you are leaving all the practical details and duties to the professionals. These outsourced companies provide effective supply chain management by ensuring orders are filled quickly while limiting errors along the way; tracking, maintaining, and organizing data to make the process work smoother each time; and getting the product into the customer’s hands faster. Procurement is just one of the many roles involved in a good supply chain. It should be considered a core component of a company’s corporate strategy and business analysis. Proper procurement management is vital because an organization can end up spending half of its revenue on purchasing goods and services. An effective procurement program can make a dramatic difference between the success and failure of a business.

As previously discussed, the procurement process includes the following steps: - Identifying requirements - Approving the request for purchase - Finding suppliers - Making inquiries and receiving quotations - Negotiating the terms - Making a final selection of the vendor - Creating a purchase order and goods receipt - Shipping management - Receiving invoices and making payments