What Is Supply Chain Management, Anyway?
PurchTips - Edition # 115
By Charles Dominick, SPSM
The following article will provide you with some quick supply chain management tips. To learn more about the purchasing fundamentals involved in supply chain management, consider the online course "Mastering Purchasing Fundamentals." Learn more by clicking here.
Is Supply Chain Management More Than Purchasing?
I get asked this question a lot: "What is the difference between purchasing and supply chain management?"
Though many different and conflicting definitions of supply chain management abound, in my definition, purchasing is a subset of supply chain management. Purchasing deals primarily with managing all aspects related to the inputs to an organization (i.e., purchased goods, materials, and services), while supply chain management deals with inputs, conversion, and outputs.
A supply chain consists of three types of entities: customers, a producer, and the producer's suppliers. The extended supply chain includes customers customers and suppliers? suppliers. Supply chain management oversees and optimizes the processes of acquiring inputs from suppliers (purchasing), converting those inputs into a finished product (production), and delivering those products or outputs - to customers (fulfillment).
Under this definition, supply chain managers decide where to locate manufacturing and distribution facilities, how to route goods and materials among those facilities, and from which parts of the world to source the inputs. Supply chain management unites disparate functions that historically reported to different executive positions with different, and sometimes conflicting, priorities.
So what does this mean for individuals who have a purchasing-related title?
One myth is that purchasing will become less important. To the contrary, analyzing spend for cost savings opportunities, negotiating, and selecting reliable sources of supply will always be critical. These functions fuel profit and provide competitive advantage for the organization.
However, the purchasing professional can expect to see his or her role expand to include the management of functions that were separate in the past. These functions include inventory management, internal logistics, warehousing, and other functions that are more related to the input or pre-production side of the supply chain. Today, due to this expanded role, purchasing is often referred to as purchasing and supply management.