Importance of Smart Supply Chain in Procurment for Increased Savings

Procurement and Supply Chain: Why/How they can be Smarter Together

With time, there has been a marked change in procurement and supply chain requirements. In the past, its primary objective was centered on cost-cutting and efficiency. But at present, its priorities have shifted towards business continuity and resiliency.

For C-suite leaders, the major challenge in attaining these goals is to overcome supply chain disruptions. For the latter, they need to focus on both thoughtful planning and source-to-pay cycles and make sure they are closely related to each other with a dynamic approach. In other words, a close collaboration between a chief procurement officer and a chief supply chain officer is necessary, and they need to work together as a team. Together, they can create greater value and a win-win situation for both suppliers and customers alike.

Procurement vs. Supply Chain: Differences

Sure, procurement and supply chain produce better outcomes when they work together. However, this doesn’t mean that they are the same. Instead, they are two distinct processes. The best part about both these processes is that despite being different from each other, they act like two sides of a coin.

Procurement refers to the activity of acquiring a product or service. The product or service acquired can be either tangible or intangible by nature. On the other hand, a supply chain is a network of organizations, human resources, activities, technology, and organizations. A supply chain includes all these aspects along with resources.

What Makes Procurement and Supply Chain Two Sides of a Coin?

If you treat procurement and supply chain as two distinct elements, a convergence between them is necessary. It becomes apparent when you consider the definitions of both elements. One of them is the outcome, whereas the other one is the system of resources and manpower that are necessary to achieve it. That is to say; procurement is the result of the successful management of a supply chain.

To interlink its existing resources and leverage them across all operations at distinct levels, a business organization needs the help of reliable technology. A software program for both suppliers and vendors can be useful for this purpose.

Why Are These Elements Smarter Together?

Supply chain management and procurement are dynamic by nature. To better understand them as individual aspects or a combined force, you need to consider their dynamics. One way to do it is to consider what happened before and after the Covid-19 pandemic.

Before the Covid-19 pandemic, business organizations were eyeing cost-cutting or utilizing the budget optimally for all the purposes to prevent overspending. The major chunk of their budget went into supply chain and procurement. Most business organizations allocate at least 70% of their expenditure on procurement and supply chain.

However, things changed at a rapid pace following the outbreak of the Covid-19 pandemic. It was a learning curve for most businesses. Survival in a volatile economic and business environment marred by the pandemic became the top priority of most business organizations.

In the current context, weathering the storm of economic crisis and slowdown is the priority of most companies. So, they are more focused on identifying and removing the pain points now than ever before.

It is more commonplace to find chief supply chain officers (CSCOs) and chief procurement officers (CPOs) working together in some companies. They do so with the view of helping their business organizations absorb the losses and recover from the effects of the Covid-19 pandemic on supply chain and procurement. This approach makes perfect sense in the current context. Alongside streamlining the whole system, this approach also helps remove the interruptions that exist at different levels.

Business organizations that haven’t adopted this model yet need to do it as fast as possible. The sooner they do it, the better. It is necessary as the operations and responsibilities and CSCOs and CPOs oftentimes collide with each other.

A lack of collaboration between both offices can keep them busy sorting out their differences. When this happens, officers in both offices are more likely to busy themselves with sorting out their differences. On the other hand, they are less likely to focus on the identification and elimination of operational challenges, which is a must to take a business organization forward.

Thus, procurement and supply chain needs to work in conjunction and complement each other. Together, they create a winning combination to help business organizations meet and beat existing challenges at different levels by leveraging the available resources through technology.

How Procurement and Supply Chain Support Each Other

Procurement and supply chain have a cause-and-effect relationship with each other. In it, the latter fulfills the demands of the former. This becomes clear when you consider the two points below.

1. Supply chains interlink resources to provide the perfect solution for successful procurement

As is the case with most things in this world, individuals and business entities need to move forward after procurement. In this connection, a relational supply chain is necessary for the smooth execution of all processes.

To generate expected outcomes, procurement needs a supply chain that can link the available resources with each other. Such resources include the management software program of suppliers, vendor supplier relationships, and other key aspects.

Just like the supply chain, procurement is also relational. It is not just about obtaining services or goods, but it is also about forming relationships.

2. Supply chains are tactical and help formulate a strategy for procurement

Procurement demands the implementation of the best strategies that are necessary for mitigating expenses, promoting lean operations, and innovation. This calls for tactical supply chains. In general, supply chains are tactical.

Final Thoughts

The integration of supply chains and procurement is of paramount importance for the survival of businesses. It can happen only if CPOs and SCSOs join hands and work in conjunction with each other. With this approach, business organizations can achieve targeted growth without compromising their competitive nature. Technology can play an important role in it. If empowered with the right supplier management software, the supply chain system can create a win-win situation for suppliers and other stakeholders by connecting all the resources.

Share this Article

Related Posts