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A typical supply chain combines tasks like product design, obtaining necessary raw materials and parts, demand estimation, product introduction planning, supply planning, channel selection, support provision, and order visibility for customers. Procurement is included in those processes in supply chain. Understanding how procurement and supply chain management both work can create a resilient, long-lasting business that can consistently exceed customers' expectations.
Procurement: Defining Its Relationship with Supply Chain
Due to high competition and changing customer demands, supply chain management has grown to be an extremely crucial and important issue for businesses. The competitive environment of global market has an influenced to many businesses to select the most suitable supply chain network for total cost reduction (Ghasimi, Ramli, & Saibani, 2014).
What’s the relationship between procurement and supply chain? Procurement is the process of acquiring the goods your business needs for its business model, while supply chain management is the process of creating products from those goods and efficiently distributing them to customers. Procurement in supply helps deliver finished goods, and it also helps an organization maintain its competitive advantage which requires highly efficient supply chain management.
Procurement is The Beating Heart of a Business
Procurement is a vital component in a business strategy. Most business operations can’t function without procurement as it ensures that all goods and services needed are acquired properly. Efficient procurement can be used as a competitive advantage to save money, time, and resources. Cutting costs by avoiding errors and maximizing resources is a way procurement contributes to a company's bottom line. Procurement is also responsible for maintaining supply chain transparency and preventing corruption.
Here are 4 main responsibilities of procurement as a beating heart of a business.
1. Selecting the Right Suppliers
One of the key responsibilities in procurement is supplier selection. The first strategic choice that affects the successful implementation of supply chain management is the choice of competent suppliers. The right suppliers meet your business needs by delivering the best products or services in the shortest amount of time at the best prices. A well-managed supplier will have a long-term impact on both customer satisfaction and business’ overall competitiveness (Siregar & Suparno, 2020).
An effective, optimized supply chain is already crucial to a company's ability to fulfill consumer orders. However, when properly managed, it can also lead to much cheaper costs and a quicker manufacturing cycle. When it comes to operations in the supply chain, Supply chain management is the overarching word that includes product creation, sourcing, production, procurement, logistics, and more. Without it, businesses run the danger of losing clients and their ability to compete in their respective industries.
2. Gathering Data and Documentation
Procurement process documents are used to assist businesses in focusing their attention and selecting the suppliers who best suit their needs based on the data. It can be challenging to move from learning about a particular sector, industry, or area to signing a contract with a preferred vendor; fortunately, using the appropriate paperwork greatly facilitates this process.
3. Maintaining Supplier Relationships
By generating revenue, purchasing plays a crucial strategic role in maintaining the viability of the business. However, if there’s a problem with the supplier relationship, both parties stand to lose a lot of time and money. As a result, maintaining strong supplier relationships will benefit the entire business greatly. To build strong relationships between buyers and suppliers, supplier relationship management decides what to do with each individual supplier. This will make it possible to enhance operations, streamline the supply chain, cut costs, and enhance customer service.
4. Developing Supplier Management Strategy
More predictability and an improvement in supplier performance are results of well-planned and implemented supplier management strategies. At every stage of the value stream, there is a risk of product defects and delays due to a lack of accountability, but effective supplier management increases process visibility and efficiency. Companies can maximize their procurement efforts and enhance their supply chain performance by having a clear and well-developed strategy.
The Procurement Process
1. Specifying and Planning
Establish the need for the product or service, establish the product's specifications, and then plan—or forecast—when and how the product will be ordered or reordered based on current data and projections.
2. Identifying and Selecting Suppliers
Choose a supplier that meets your product needs, either from a list of approved vendors or preferred suppliers you already work with, or by looking up new vendors and putting out an RFx, or request for information, proposal, or quote.
3. Negotiating and Contracting
Establish expectations and clearly communicate requirements to suppliers before engaging in direct negotiations to reach an agreement on the best price and terms for the product. Once all conditions have been agreed upon, complete and sign the supplier agreement.
4. Placing the Purchase Order
The price, product specifications, and all other terms and conditions of the good or service being supplied are expressly stated in the purchase order (PO). Additionally, it acts as the "source of truth" for the product being purchased by the different impacted business units.
There are times when expediting the product order is. Examining the punctuality of deliveries during this step can highlight underlying problems that need to be resolved, such as a lack of clarity regarding payment due dates, delivery dates, and work completion.
6. Receipt and Inspection of Purchase
A "three-way match" is performed between the PO, the invoice, and the packing slip/receiving document for each order to ensure that it complies with the established specifications and quality standards. Filling out a receiving discrepancy report may be required if the delivery did not meet the requirements.
7. Invoice Clearing and Payment
Once the product has been inspected and the alignment of the documents (the PO, the invoice, the packing slip/receiving document) has been verified, coordinate purchasing and accounts payable to complete the purchase process.
8. Maintaining Records and Relationships
Keep all necessary records for tax purposes, audit protection, to verify product warranties, and to facilitate future product orders. Based on key performance, provide the supplier with data and feedback.
In conclusion, a steady and efficient flow of goods is a sign of a strong supply chain. Additionally, procurement ensures that all goods and services are properly acquired so that projects can be completed successfully and efficiently.
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