Role Of Procurement In Supply Chain Management in Manufacturing Industries

In order to handle agile business operating models and quickly shifting demand patterns, Supply chains today are transforming. The supply chain has evolved from being sedated to unidimensional sequences of discrete functions to a dynamic and interconnected network.

Procurement is the act of purchasing services or goods as part of a company’s operations. Businesses can sometimes be on either side of the procurement aisle. For instance, OEM suppliers buy tools and raw materials used to make components and still sell components to businesses in the same industry they serve. Procurement activities are part of a supply chain management role. While doing research for this article, I found this interesting article on how to achieve sustainable procurement best practices and prove compliance and since the article already significantly covered that part, we will simply jump into the seven roles of procurement in supply chain management in manufacturing companies as well as properly examine supply chain management and so on.

What Is Supply Chain Management?

The management of services and goods flow is called supply chain management. Supply chain management encompasses all the processes that turn raw materials into finished products. It entails actively streamlining a company’s procurement activities to enhance customer value and increase the business’s competitive advantage.

Supply chain management is an essential component of a company’s overall success because improvements to a company’s supply chain management process can:

• Increase annual revenue and margins.
• Enhance the company’s ability to compete.
• Enhance satisfaction of the customer.
• Optimize supply rate.
• Cut costs in multiple areas of the company.

How Supply Chain Management Works

Supply chain management refers to vendors’ efforts to design and implement cost-effective and efficient supply chains. Supply change management (SCM) attempts to centrally control or link a product’s production, distribution, and shipment.

Companies can reduce costs and distribute products faster by effectively managing the supply chain. This cost reduction is accomplished by tightening control over internal inventories and production, sales, distribution, and the inventory of vendors used by the company.

SCM is founded on the idea that almost every product entering the market results from the efforts of numerous companies that make up a supply chain. Although supply chains have existed for a long time, most businesses have only recently begun to consider them as an advantage to their overall business operation. 

Ways Effective Procurement Processes Can Positively Impact Your Business

Here are ways effective procurement processes can positively impact your business.

1. Reduces Total Costs

Implementing an effective procurement can result in tangible cost savings, which improve supply chain quality and movement. Lowering operational costs by acquiring materials and supplies at the best price provides extra value. 

Aside from just purchasing materials, procurement processes provide total visibility of a company’s purchases to get insight on possible purchasing reductions, maintain stakeholder trust, and better comprehend purchasing patterns to boost finances. 

2. Facilitates Greater Efficiency

Procurement professionals use external suppliers and markets to gain a competitive advantage. A procurement strategy should include the following features to maximize efficiency.

• Reduce operational redundancies and forge beneficial collaborations with vendors to build an extensive portfolio of vendors that align with the organization’s overall intention and purpose.
• Provide a company with economies of scale that decrease supply and production costs.
• Evaluate a vendor’s capabilities, competitiveness, interest, and economic health to remove poor performers.

3. Decrease Supplier Risk

Supplier risk is the possibility that a vendor will fail to meet their contractual obligations. Supplier risk events typically occur in three categories:

• Operational
• Financial Compliance
• Strategy

In order to manage risk, procurement processes implement continuous and evolving risk mitigation strategies to manage every risk associated with a company’s activities. An organization’s competitive advantage can be jeopardized if it does not have a long-term method for identifying and mitigating these risks.

Roles Of Procurement In Supply Chain Management in Manufacturing Industries

This section will examine the six roles of procurement in supply chain management in manufacturing industries.

1. Maximizing Profits

Procurement and supply chain management increases profits when utilized in manufacturing companies. Profit maximization is accomplished by balancing supplier quality, supply assurance, and cost reduction. Creating a competitive advantage is the key to the success of any industry. 

2. Optimizing Supply Chain

As the supply chain becomes more complex, supply chain management and procurement functions are becoming more strategic in manufacturing industries to handle the complexity. Procurement and supply chain management help optimize the supply chain.

3. Reducing Supply Chain Risk

Critical stakeholders must explore new ways to enhance business operations by motivating strategic cost savings, supplier collaboration, better spend management, and supplier partnerships. Procurement also helps manage compliance and reduces the overall risk in the supply chain.

4. Saving Time

An adequate supply chain will save businesses a significant amount of time. Manufacturing supply chain management solutions particularly enable facilities to increase the rate of manufacturing items. 

5. Supporting Company Infrastructure

The way a business is structured to attain its main objective is its infrastructure. These include the type of technology and equipment used and the types of employees. An adequately designed supply chain incentivizes manufacturing companies to organize their infrastructure most advantageously.

6. Supplier and Customer Integration

Modern manufacturing companies attempt to squeeze every bit of efficiency out of production processes to stay competitive in the global market. Manufacturers who use a just-in-time ordering system must integrate their order-processing systems directly with the systems of other companies via virtual networks to enhance business efficiency.

7. Increases Customer Satisfaction and Service

The ultimate benefit of manufacturers organizing their operations and having an effective supply chain is that it positively affects their ability to satisfy customers. Procurement and supply chain management ultimately lead to an increase in customer satisfaction.

Conclusion

Due to rapidly changing customer demands, procurement and supply chain management enables manufacturers to manage product lifecycles effectively. To innovate faster in an ever-changing regulatory environment, manufacturing companies must adopt a new internal and external collaboration approach with partners and suppliers.

Procurement, at its core, drives automation and efficiency to create the capacity to be more strategic and innovative. Understanding how supply chain management plays a role in manufacturers’ daily strategic and operational activities is critical for all entrepreneurs and managers in the manufacturing industry.