What Is Procurement And How Does It Impact The Supply Chain?
Procurement and Supply Chain
Procurement is an act of purchasing goods and services, particularly for business purposes. The process involves sourcing for supplies, and obtaining and settling the supplier invoices when due. Some products procured include software, raw materials, or any other products directly linked to the company’s production process. In the manufacturing industry, procurement falls within the scope of the supply chain. Every supply chain network relies on an effective procurement process for its overall success. According to Baltzan (2021), procurement plays a significant role in streamlining operations, minimizing material and operational costs, and managing supplier risks.
Companies with proper procurement planning adopt cost-effective strategies to cut operational costs. A good example is the world's largest container shipping company, commonly referred to as Maersk. The company has incorporated efficient delivery methods that allow customers to move their items without multiplying transportation costs (Bag et al., 2020). Truck utilization has greatly lowered transportation costs and mitigated cargo delays as their customs services ensure that shipments arrive on time for cargo releases. This proactive style of operation has enabled customers to enjoy a quality and uninterrupted supply chain that continues to flourish and deliver value to the company.
Procurement also impacts the supply chain by reducing supplier risks. Supplier risks are possibilities that suppliers may fail to deliver on their commitments as agreed in the contract, and they could be in terms of financial, operational, or compliance risks. Baltzan (2021) suggests that to manage these risks, procurement departments institute risk mitigation strategies that ensure all deliveries are monitored properly, suppliers are paid on time, and no breaks are experienced along the supply chain. An effective procurement process lays a greater foundation for achieving a successful supply chain and positive business growth.
