What is procurement and supply chain management? Detailed components, risks and trends

by Stephanie Velazquez on 15/12/2020

We often describe the supply chain with the word logistics, but it actually takes on a more complex meaning. The supply chain induces a more global approach to product flow by maintaining a perfect balance and optimal communication between all actors and activities of an organization, focusing on:

  • reinforcing competitiveness,
  • increasing performance,
  • conserving the quality of service.

But, given this broad vision of organizations, it is essential to define the outlines of the supply chain and challenges arising from its processes.

What definition can we give to procurement and supply chain management? What is the role of the supply chain manager? What is the difference between logistics and supply chain?

Let's take a look at these questions.

What is procurement and supply chain?

Definition

Procurement and supply chain refers to the overall processes occurring from sourcing raw materials to the delivery of goods to the end customer.

These processes are of different types:

  • Product and material flows, which are part of the product life cycle;
  • Information flow, necessary for communication and proper execution of activities;
  • Financial flows, involving the exchange of money from customer to the supplier; which relates in particular to payments.

However, optimal supply chain management requires adopting a vision and strategy that extends beyond the boundaries of the company. It integrates collaboration and coordination between the different actors involved in the process:

  • companies,
  • customers,
  • suppliers, etc.),

even though their interests may contrast.

Challenges

The first of these turns out to be economic:

According to Oliver Wyman`s consulting firm, depending on the industry, supply-chain costs range from 10% to more than 20% of revenues. Take the giant Amazon, whose logistics costs now amount to over a quarter of its turnover.

Therefore, understanding how supply chain management works is a major challenge for companies, as it can lead to lower costs, higher margins, and better competitiveness.

However, even if it is a major challenge, let's not forget other issues associated with supply chain management:

  • Improving management of risks related to logistics, such as peaks in volume orders or supplier problems. Even though this issue remains closely linked to the company's economic objectives.
  • Maintaining good relations with its suppliers upstream.
  • Maintaining quality service to its customers (shorter delivery times, responsiveness, better customer knowledge, etc.).
  • Prioritizing issues relating to safety, whether human or environmental. In this sense, it can be part of a CSR (corporate social responsibility) dynamic.

Differences between logistics and supply chain

The two notions are, of course, closely linked. However, logistics is rather a process in the workflow, and the supply chain’s main objective is to integrate all the processes of the workflow into the same operation.

  • Logistics' main objective is to guarantee correct delivery to the customers by coordinating the activities and departments related to warehouse management, stock management, transportation, procurement, and delivery.
  • The supply chain, on the other hand, encompasses all the processes and players that take a product from the supplier to the end customer. As a result, certain professions are integrated into this chain, such as customer service or quality control.

Role of the supply chain manager

By extension, supply chain management, or SCM, refers to the activity of managing the supply chain, and therefore optimising its:

  • costs,
  • processes,
  • techniques,
  • resources,
  • equipment,
  • information systems.

A supply chain manager is a process coordinator in cross-functional roles, who must ensure:

  • constant customer satisfaction,
  • while taking into account the company's margin and profitability objectives,
  • as well as regulatory restraints.

This is why the supply chain managers are often involved in the company's decision-making, as their missions are the foundations on which the company is based.

But exactly how far does his field of intervention extend?

Although they obviously differ from one structure to another, here are some of the most common missions of the supply chain manager:

  • ensure the correct operational management on a daily basis,
  • propose a strategic plan and anticipate future actions to respond to technological, business, and consumer trends,
  • prevent emergencies and risks, and know how to respond to them,
  • work closely with all players in the team, including international agents,
  • improve communication and cooperation within teams,
  • integrate a CSR policy and thus contribute to the good image of the company,
  • choose and integrate into the process the tools and software that enables good supply chain management.

This last point is of particular importance. In today's globalised and increasingly competitive economic climate, we must remember that investing in high-performance tools is one of the best ways to increase performance.

Procurement and supply chain management tools

Due to responsibilities in supply chain management, and the resulting global approach, many tools, and software have to be used in order to analyze results and make proper decisions.

Supply chain management software

In order to carry out effective supply chain management, a SCM system is usually divided into subsets of software or solutions with very specific functionalities.

SCEs, for Supply Chain Execution, are tools for standardising the entire chain, from order entry to delivery. They generally include two main functions:

  • WMS (Warehouse Management System): centers on warehouse management by taking into account simple elements such as reception, storage, and dispatch, but also more complex elements (traceability, allotment, etc.) ;
  • TMS (Transportation Management System): focuses on optimizing transportation flows, costs, and resources.

Global Management software

  • ERP (Enterprise Resource Planning), is a comprehensive software package, which supports a large part of the company's activities and offers examples:
  • human resources management,
  • inventory management,
  • accounting,
  • project management, etc.

Such a tool as NetSuite was designed for businesses that work on an international level. This cloud-based software helps businesses manage their core processes with a unified, fully integrated system. NetSuite ERP will help you to carry out all your key administrative and financial processes, including accounting, inventory management, supply chain, and order management.

  • MRP (Materials Requirement Planning) supports production by taking into consideration all available resources (human, material, raw materials, and time).

Customer Relations Software

If we meet the suppliers on one side of the chain, the customers are on the other side.

In this sense, a CRM (Customer Relationship Management) tool's objective is to place customer relations at the heart of the company's strategy, which then could lead to a direct or indirect impact on the supply chain.

Check out our list of Online Sales and Customer Management Software.

Many challenges await the players in supply chain management.

And for good reason, like all the links in a chain, the supply chain requires cohesion, a perfect balance that can be disturbed by the slightest problem or disruption.

If we add to this the demands for increased profitability in the face of the emergence of new players on a global scale, we understand why it has become essential to equip ourselves with high-performance tools capable of meeting these challenges.

But the modernisation of supply chain operations does not stop there.

Technological development raises questions about the future of the supply chain, which is increasingly connected, robotised, and dependent on the use of big data AI.

An example of this is the online marketplace giant Amazon, whose state-of-the-art fulfillment center in Tilbury provides a glimpse of the future where humans and robots work harmoniously to get packages to customers on time.