By Moses Manuel, Lecturer in Business, Legal and Development Studies, and Founder of Zerite Network
Purchasing and supply management is not an entirely new concept to most people. Take a look at the first part, purchasing: we all undertake purchasing, be it data for your mobile phone, food, clothes, etc. Purchasing and supply management is one of those things you know, hence, you do not give it much thought. In business, however, it is another thing. There is a huge difference between doing something on a daily basis and doing it professionally.
Let us look at purchasing and supply management from a professional perspective.
What is purchasing?
From an organisational point of view, purchasing involves the acquisition of supplies or inputs, that is, raw materials, components, goods and services, needed for an organisation’s activities, such as conversion, consumption or resale.
Some organisations have departments that handle this kind of thing, this is where you find the procurement specialists, while in other organisations it is usually individuals or teams from other departments, like finance or production, that end up handling purchasing.
What you need to understand about professional purchasing is that, irrespective of who is doing it, the basic purchasing objective is to buy materials of the right quality, in the right quantity, delivered to the right place at the right time at the right price. These 5Rs are fundamental.
What about supply management?
Supply is the process or act of providing something or making something available, often in response to a customer’s requirement.
Supply management means making sure that everything goes well in the process involving the flow or transfer of goods, services or information from a supplier to a customer. Supply often happens as a ‘chain’ of activities, where the outputs of one activity end up being inputs of another and so on.
Here is a practical example: raw materials are supplied to a manufacturer of components, the finished components are supplied to a maker of sub-assemblies or modules, the finished sub-assemblies or modules are supplied to a manufacturer or assembler of equipment, the finished equipment is supplied to a wholesaler who supplies retailers, who supply the end-user or consumers of the equipment.
Why is the distinction important?
Purchasing and supply management is important since it helps to secure and convert inputs from suppliers into outputs that will satisfy customers.
Remember that each supply chain has two sides: an upstream and a downstream. At the upstream end, that is, the end of a supply chain, we look at suppliers as an important factor because they influence the quality of inputs that go into the making of products and deliveries of services. On the downstream end, customer needs are the driving force behind all organisational activities.
This means that purchasing and supply management becomes important if you are to add value to whatever goods or services you offer, if you are to gain any competitive advantage. Keep in mind that businesspeople pay for solutions and these will depend on the perceived value of your goods or services.