Procurement is the proactive process of purchasing goods and services needed for the organization. It is strategic. Procurement involves supplier qualification, contracting, payment, and delivery. It focuses more on the product's value than the cost and is dependent on supplier relationships.

The Difference Between Procurement and Supply Chain Management

Q: What is supply chain management?

Supply chain management is the management of all the processes that enable the flow of goods and services right from when it was a raw material to the finished product. It includes planning, sourcing, manufacturing, logistics, and returns in case of defects..

Purchasing. Product acquisition. Procurement. You would’ve heard these buzzwords often and they seem quite similar. After all, on the surface procuring, acquiring, and purchasing seem like one and the same task, right?

Not exactly. In reality, they’re all different concepts in the procurement field that you need to get a good grip on to build and run a sustainable procurement machine.

In this article, we’ll dive into:

What is procurement and how it works?
What is supply chain management and how it functions
The key differences between them, and
How and when to determine which approach to take for your organization

Understanding how procurement and supply chain management both function will help you build a resilient, sustainable organization that can stay unmoved and exceed your customers’ expectations always.

What is procurement?

Procurement is the sum total of effort that goes into discovering and acquiring the supplies an organization requires to function effectively. This includes sourcing for supplies, sealing contracts, managing suppliers, and settling supplier invoices as and when due.

Unlike how similar it sounds, procurement goes far beyond just purchasing supplies needed to run your organization’s day-to-day operations. Rather, procurement is concerned with what happens end-to-end, from the moment an organization determines a supply is needed until the required infrastructure to deliver and keep delivering it is made available.

To that end, procurement comprises several branches required to get supplies from suppliers to your organization’s doorstep, such as:

Sourcing for vendors
Estimating demand
Determining quality standards and technical specifications
Negotiating prices
Contract management
Acquiring goods and services

While procurement includes a broad range of processes, from finding suppliers to placing orders and forecasting demand, the most vital part is contract management. Using contract management software helps enhance the efficiency and compliance of vendor contracts and keeps the procurement process streamlined.

What is a supply chain?

The supply chain is the network of manufacturers, suppliers, logistics providers, and others who work together to get your product into the hands of a client. Not only do raw material providers, transportation businesses, and wholesale warehouses make up the supply chain, but so do jobs and services that help move the product. These responsibilities include quality assurance, marketing, procurement, and sourcing.

The supply chain of a company would, understandably, differ depending on the items or services it sells. It’s also crucial to note that procurement is only one aspect of the supply chain management process.

What is supply chain management?

Supply chain management is the art of managing all the relevant factors to get your products into your end users’ hands as efficiently as possible.

Supply chain management is about optimizing your supply chain so it runs as smoothly as possible, eliminating friction, and ensuring the entire process of producing goods or services, all the way to delivering them to the end-users functions seamlessly.

Differences between procurement and supply chain management

To recap, procurement is the process of acquiring the supplies you need to run your business operations.

On the other hand, supply chain management encompasses how those supplies are transformed into finished products and delivered to the end-users.

Here are some of their key differences.

Procurement emphasizes on input; supply chain management focuses on output and delivery

While procurement has an input focus, supply chain management is more output-oriented and deals with what it takes to get your products and services into the hands of your customers as efficiently as possible.

Procurement deals with acquiring supplies; supply chain management encompasses all that and more

Procurement can be seen as a microcosm within the wider macrocosm, supply chain management.

While procurement only emphasizes building supplier relationships and managing them to ensure they can be leveraged to deliver the supplies your organization needs to function, supply chain management includes all that into its big bracket.

As it stands, procurement exists as a branch of supply chain management since it assists in getting the inputs that get processed into finished products.

Procurement supports production; supply chain management encompasses production and distribution

Procurement exists as a very significant support function within the business management equation as it’s essentially only concerned with ensuring the constant flow of the supplies an organization needs to process into finished products.

Supply chain management, on the other hand, is the main function that is supported by procurement.

In essence, supply chain management deals with how supplies are transformed into finished goods and distributed to the customers.

Supply chain management is all-encompassing, while procurement exists to support it with the input it needs to work.

Similarities between procurement and supply chain management

Judging by the insights we explored already, we can understand three key factors:

Procurement supports your business functions by offering the inputs you need to run day-to-day operations
Supply chain management deals with how those inputs are transformed into finished goods and delivered to your customers
Procurement exists as a branch within supply chain management—it all boils down to getting goods to buyers

Despite their differences, both procurement and supply chain management are quite similar in many ways.

Here’s a breakdown of the similarities between procurement and supply chain management.

Both procurement and supply chain management assist in delivering your business goals and targets
Supply chain management and procurement are both internal operations; they may require input from external stakeholders but their core still remains within your organization
Procurement and supply chain management has to be managed proactively in order to support your business operations

In conclusion, if you’re ever going to make sense of both your procurement and supply chain management, you need a tool designed for just that.

More specifically, you need a tool that’s built with an understanding of the differences between procurement and supply chain management.

That’s the only way you’ll be able to manage both optimally without lapses.

Using Kissflow Procurement Cloud, you can: