Broadening the meaning of supply chain management: procurement, purchasing, and sourcing

Although expert David Kiger has already addressed the topic of supply chain management from different points of view, it is definitely necessary to provide a wider definition of the scope of its meaning. It seems that as industries keep unraveling new characteristics, what was once known as supply chain management has acquired new connotations and meanings, as new terminology has been linked to its functions: procurement, purchasing, and sourcing.

In order to define what procurement really is, it is wise to stick to its original definition. Procurement is nothing more than the process of getting the goods and the services a company needs to carry out the strategies of its business model. Normally, businesses carry out some tasks to develop their standards of quality, financing, purchase of goods and services, negotiating price, stock and inventory control, amongst others. Such tasks are part of what is commonly defined as procurement. In the overall supply chain management process, procurement activities stop once the company has acquired the goods and the services; in order to make profit, it is obvious that the cost of acquiring these goods and services must be less than the amount the company intends to sell the goods for, minus the cost normally associated with processing and selling them.

There is, however, more about this extensive definition; nonetheless, it is the nature of the business itself what will determine the extent of the procurement and the paying cycle. Big multinational corporations, for instance, given their nature, oftentimes are required to undergo a more self-assessment stage, whereas smaller businesses usually get past this phase much faster. Such premises is what suggest that companies and businesses in general, prior to acting carelessly, ought to understand both the scope and the nature of their business model in order to come up with more accurate and tailored strategies.

Prior to the emergence of the digital era, today’s well-established companies would use purchase orders as a procurement solution. Although many things have changed as of the past decade, this method still proves to be effective under IoT procurement solutions. Purchase orders can be tailored to every business regardless of its size or its nature.

A supply chain, as mentioned several times in previous articles by David Kiger, demands that every single person involved help get the company’s product in the hands of its customers. There are a plethora of activities that, when put together, constitute what has previously been defined as supply chain. Some of these activities are raw material gatherers, manufacturers, transportation companies, wholesale warehouses, stock, etc. Besides, it includes the task and other measurements that contribute to taking the goods across the world, such as quality control, marketing, sourcing and the aforementioned procurement.

Procurement

Simply put: procurement is the process of acquiring the goods a company needs, while supply chain refers to the whole infrastructure (rather large, in most cases) needed to get those goods. Therefore, if a supply chain is that extensive network of manufacturers, suppliers and other logistic services providers, supply chain management becomes the act of monitoring and managing the whole supply chain in order to ensure that all activities operate efficiently. Besides, supply chain management also means making sure that all suppliers and manufacturers maintain quality standards —which is oftentimes linked to engaging in ethical businesses practices. This latter point has indeed become a vital issue under today’s framework and is being faced by almost every single organization today. If a link of a supply chain is seemingly doing business in an unethical manner, then the organizations that are dependant on such specific link of that specific supply chain are open to suffering all kinds of repercussions.

A much easy-to-understand connotation suggests that supply chain management is just one out of many responsibilities faced by procurement activities. It is important to get a deep understanding of the differences between both terms, as it allows businesses to get a much broader idea about the full scope of procurement.

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Image courtesy of Erik Scheel at Pexels.com

Purchasing and sourcing

Purchasing is just a part of procurement; a consequence of the activities linked to the previously mentioned connotation. Unlike the whole procurement and paying cycle, the activities that are explicitly inherent to purchasing should not be tailored to the nature and the size of each business. And last but not least, sourcing, as the name suggests, refers to locating sources of the goods and services a company requires. It is another section of the procurement process. While procurement is responsible for the whole logistic framework behind purchasing activities, sourcing focuses on finding the best and least-expensive suppliers for the goods and services a company needs to function properly. This stage often includes a sheer array of activities commonly related to international and domestic negotiations as well as market research.

* Featured Image courtesy of Pixabay at Pexels.com

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