Procurement and supply chain management are important components of spend management, following a product's life from manufacturing until it arrives in the hands of the end user. Despite increasing understanding in the SaaS market regarding these functions, confusion remains regarding where the supply chain ends and procurement processes begin. Clarifying this distinction is the first step in improving your company’s operating efficiency. 

By the end of this article, you’ll know:

• The major functions of the procurement and supply chain management departments 
• Where procurement and supply chain management overlap and how they differ
• How procurement and supply chain management can work together to produce better outcomes

Download the free ebook: The Procurement Strategy Playbook

What is procurement?

In simple terms, procurement focuses on evaluating new suppliers and working with existing ones to buy goods and services for a business. The procurement process aims to build strong relationships, with great procurement teams seeking mutually beneficial partnerships with both internal clients and external suppliers.

In larger organizations, procurement also serves as a bridge between the finance team and departmental stakeholders. Effective procurement makes it easier for departments to get what they need while providing accountability and data for financial approval. 

Procurement is sometimes confused with purchasing, as many organizations use the two terms interchangeably. However, there is a distinction between procurement and purchasing. 

While purchasing describes the act of acquiring and paying for materials, procurement covers a much wider range of activities, including:

• Needs identification: Procurement helps stakeholders understand and support company needs and initiatives, develop forecasts, and plan resource acquisition to meet deadlines.
• Supplier relationship management: Procurement teams manage the supplier lifecycle from evaluation and onboarding to renewal or termination. 
• Negotiation: Using benchmark data and a partnership approach, procurement leverages supplier relationships to secure the best terms and pricing.
• Contract management: The procurement team, along with Finance and Legal, monitors and manages supplier agreements to ensure vendors meet contract terms and deliver goods on expected timelines.
• Receipt of goods: Procurement may work with receiving to reconcile invoices against the purchase requisition, purchase order, and invoices, ensuring accuracy and proper delivery of goods.
• Payment: Procurement and accounts payable (AP) teams intersect to manage approval, GL coding, and processing to make timely supplier payments. 

Ebook

The Procurement Strategy Playbook for Modern Businesses

Learn the key pillars of a strong strategy, valuable procurement metrics to track, and initiatives you can start implementing today.

Download the ebook

What is a supply chain? 

A supply chain is a network of suppliers, service providers, logistical partners, and other organizations working together to provide companies with raw materials, manufacture them into final products, and deliver them to end users. It involves coordinating activities, people, entities, information, and resources to ensure the efficient flow of materials sourcing and goods production. The supply chain represents the steps it takes to get a product or service from its place of manufacture into the hands of the customer, including warehousing, transportation, distribution, and delivery.

What is supply chain management (SCM)?

Just as procurement bridges upstream suppliers and an organization, supply chain management bridges the downstream network and the promotional and logistics providers connecting the company and its customers.

While shipping and delivery play a crucial role in supply chain management, they represent only a small portion of the process. Managing the manufacturing and the flow of goods to buyers encompasses a much more complex set of activities. 

Supply chain management teams are responsible for:

• Inventory management: Supply chain teams manage and track the intake of both raw materials and distribution of finished goods. They maintain inventory levels of necessary components to meet production goals.
• Manufacturing: Supply chain professionals handle the process and timelines of turning raw materials into products and the methods of improving efficiency in the entire process.
• Supply chain risk management: Finance and supply chain managers evaluate the stability of the supply chain network and the ability of suppliers to help get goods to market on time and at the expected cost. 
• Quality control: SCM teams work to improve the overall condition of products and reduce manufacturing issues and product defects. 
• Delivery and return management: SCM and logistics teams manage the transport of finished products from the manufacturing site or wholesale warehouses to distribution points (retailers, etc.) and handle returns for defective or unwanted products. 

How do procurement and supply chain management differ?

Procurement and supply chain share the core objective of driving organizational success, though they achieve it in different ways. Procurement is a subset of the overall supply chain process.

Some key differences between the two are: 

• Procurement is “where things end up” in terms of production. The main goal of procurement professionals is to acquire inputs like materials and services. 
• Supply chain management is “where things start” in terms of materials. Supply chain professionals are concerned with transforming procured raw goods and services into products.
• Procurement is a support system for production. Supply chain management serves as the agent of production and distribution of goods. 
• Procurement’s objectives center on capital efficiency (finding cost-effective ways to save money and improve profitability), whereas supply chain management focuses on operational efficiency (finding ways to reduce friction and distribution costs). 

Ebook

The Procurement Strategy Playbook for Modern Businesses

Learn the key pillars of a strong strategy, valuable procurement metrics to track, and initiatives you can start implementing today.

Download

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What do procurement and supply chain management have in common?

 Procurement and supply chain management share several objectives and critical activities, including reducing costs, improving operational efficiency, and building mutually beneficial supplier relationships. 

Cost-saving opportunities

Procurement’s main concern is with spend optimization, identifying ways to save money and improve your bottom-line performance. On the supply chain side, the focus is on maintaining quality standards and increasing value to improve topline performance. 

Procurement management and supply chain management both seek to save by maximizing spend efficiency on new projects, analyzing current projects and contracts to realize cost reductions, and negotiating optimal prices and terms to maintain efficiency. Teams achieve this by practicing an effective supply chain strategy or employing procurement software for process automation.

Operational efficiency

On the procurement side, efficient administration of the purchasing process shortens the time to performance for purchases and reduces the research hours necessary to execute deals.

On the supply chain side, building efficient production and distribution channels allows you to get goods to market faster and more cost-effectively. Improving both sets of processes saves hundreds of hours in employee wages and increases the productivity of the manufacturing function. 

Strong supplier relationships

Strong supplier relationships play a critical role in procurement and supply chain. By improving your sourcing strategies with suppliers and distributors, you can leverage better pricing, reduce the time spent evaluating suppliers, and streamline functions like goods requisitions, order processing, and invoice payment. 

Supply chain and procurement strategy

Good systems are foundational to a productive purchasing and supply management process. Incorporating the best practices outlined below helps you position the business for better cost efficiency, stronger relationships with suppliers, and improved business outcomes. 

Leverage technology

Using software to manage purchasing and supply chain provides control and visibility for everything from sourcing suppliers and engaging in negotiations to evaluating supplier performance and conducting spend management. A platform like Order.co can help automate routine tasks, reducing human error and enabling data-driven decisions that enhance operational efficiency.

Perform spend analysis

Conducting routine spend analysis is a fundamental step toward mastering procurement and supply chain optimization. By systematically examining expenditures, you unlock insights into spending patterns, supplier performance, and potential cost-saving opportunities. This proactive approach streamlines business operations, significantly boosting cost efficiency and strategic sourcing effectiveness. Embracing spend analysis as a regular practice helps you stay ahead of the curve, improves decision-making, and allows for process improvements that maximize impact and value.

Nurture supplier relations

Good partnerships can have a big impact on business goals. Forging solid relationships with suppliers helps create a foundation of trust and collaboration, resulting in enhanced supply chain quality, reliability, and innovation. You can encourage stronger partnerships in several ways: 

• Build a strategic sourcing program to vet new potential vendors
• Streamline the number of vendors your organization works with
• Prioritize open communication and collaboration with suppliers

This approach optimizes the procurement process while securing a competitive advantage and creating resilience. Adopting this mindset helps transform transactional supplier interactions into valuable alliances that propel your business forward.

Establish contingency plans

Contingency planning is an essential tool for managing supply chain disruptions effectively. The process helps your business anticipate potential challenges and devise robust strategies to mitigate risks. By establishing comprehensive contingency plans, you equip your organization with the agility to respond swiftly and efficiently to unforeseen events. This proactive approach safeguards operations and ensures continuity and stability in the face of adversity.

Ways supply chain and procurement can work together better

Though procurement and supply chain operate independently, their coordination is essential to progress. They are, in essence, the two legs responsible for your organization’s forward motion. 

Procurement and supply chain can improve overall performance through:

• Improved cross-departmental planning: Planning and resource allocation for the manufacturing and distribution functions should be a team effort. Improving interdepartmental alignment can produce more accurate forecasts, offer a holistic view of contract terms and potential impacts, reduce capacity and warehousing friction, and shorten the time from raw materials acquisition to goods delivery. 
• Increased data transparency: Centralizing data can greatly improve the ability of both departments to reduce lead times, identify trends, and realize opportunities for cost savings and efficiency. Integrated software can bring the supply chain management process into full view, allowing procurement to better support supply chain functions and improve performance times throughout the production cycle. 
• Supplier streamlining: Though procurement many have a well-honed preferred vendor list, extending that concept to embrace an interdepartmental approach can more fully leverage optimal pricing and terms. Doing so can further reduce the time and cost of order and payment processing. 

If you’re looking to bring procurement and supply chain into better alignment within your organization, schedule a demo to see how Order.co can help.