Where the Procurement Process fits within the Supply Chain Process
How is procurement related to supply chain management?
The procurement process is a critical part of the supply chain. Companies must work together to ensure that all departments communicate effectively to ensure that procurement is successful and the supply chain continues to operate.
Supply chain refers to a business process that encompasses the steps a company takes to transform raw materials into finished goods delivered to customers. Procurement is finding and acquiring goods, services, or works from an outside source.
The supply chain is the process of transforming raw materials into finished goods that are delivered to customers. It encompasses several steps and activities, including:
Designing products
Purchasing of raw materials and components
Manufacturing the product or creating a service
Providing the product or service to consumers
An organisation must purchase goods and services from external suppliers (vendors) for a business to perform its function.
This is where procurement enters the supply chain process. The procurement division plays a vital role in business operations as it acquires services or goods for its organisation.
Procurement is one of the most essential functions in a company, as it helps ensure that the organisation has everything it needs to function efficiently.
Procurement is often confused with purchasing and might be considered synonymous with ordering, buying or sourcing goods and services.
However, procurement differs significantly from these activities because it includes:
planning how to operate within supply chains
sourcing products or services on behalf of an organisation
negotiating deals with suppliers
managing risks associated with procurement contracts.
Procurement plays an essential role in the supply chain process. It allows companies to purchase needed items at fair prices while minimising risk exposure through careful planning and negotiation skills.
Sourcing in the Supply Chain
The procurement process begins with sourcing.
Sourcing is finding and selecting suppliers to meet your company’s needs. The procurement department can conduct sourcing internally or externally, depending on the nature of the purchase and its level of complexity.
For example, when buying office supplies, a company may choose to go through an external supplier that already has relationships with other businesses in the industry.
However, suppose you are purchasing a large piece of equipment or machinery for your factory floor.
In that case, you might consider going directly to one of your vendors instead of shopping around for bids from multiple companies (and losing valuable time).
Agility within the procurement process can be a game changer in the supply chain process.
Sourcing Transportation in the Supply Chain
Moving goods from one location to another is a crucial and integral part of the supply chain process.
Transportation can be as simple as walking down the street with a package, or it can be pretty complex, involving container ships and trains. Whatever form it takes, moving goods from their original source (the supplier) to their destination (the customer) makes up a significant portion of the cost of doing business.
Many businesses rely on transportation companies to move their products around the globe. Some companies specialise in ground or air freight, while others specialise in shipping by sea.
When choosing which transportation method they will use for each shipment, companies must consider the following factors:
price
delivery time
logistical considerations such as timing restrictions associated with certain modes of transport (e.g., trucking only operates during daylight hours).
Additional costs are associated with using specialised transportation modes that may not apply when simply carrying cargo via trucks or railcars.
For example, suppose your company wants its products delivered via air freight. In that case, extra fees will be associated with this type of shipping method.
This is mainly because all shipments require special airport handling procedures before departure.
Additionally, many airports have strict regulations regarding what materials can be transported via commercial airlines. It may not always be possible, even if you want them shipped this way!
How Warehousing is vital to Procurement and Supply Chain Processes
Warehousing is the process of storing goods in a warehouse or storage facility. Warehousing is one step in the supply chain process, which includes many other activities, such as purchasing and receiving goods, transportation, and inventory management.
Goods are warehoused when they’re not being produced or consumed by customers; this usually happens with finished products that can be stored without deteriorating while waiting to be sold.
How Distribution works in the Supply Chain
Distribution is the process of moving goods from the warehouse to the customer. It’s one of the most critical parts of your supply chain and has many components specific to your business.
For example, your distribution process might include a call centre if you sell shoes. This is where sales representatives can answer questions about what size shoe someone should wear.
Or maybe there’s an electronic component where customers can order online and have their purchases shipped directly from your warehouse (this would be called e-commerce).
In either case, these steps in your distribution process are critical because they help take care of customers who buy from you. We all know that happy customers are more likely to come back!
The other important thing about distribution is that it gives companies direct feedback on how well their products are selling out in stores or online.
This information helps businesses decide where they need more inventory or whether to discontinue selling certain items altogether.
Conclusion
Procurement is a vital component of supply chain management. It enables organisations to create the right products and services by purchasing the raw materials they need from external suppliers.
Without optimising the procurement process, organisations will struggle to remain competitive with the product or service offering.