Roles of Supply Chain Facets - Procurement

This article is a continuation of the article - "What do you Know about the Supply Chain". The focus here is on procurement.

FACETS OF THE SUPPLY CHAIN (SC):

These are the facets:

• Planning & Inventory Management
• Procurement
• Logistics
• Distribution

This article will focus on where EXTERNAL EXECUTION starts: Procurement

DECRIPTION OF PROCUREMENT:

Please be aware that people typically use the designation of PURCHASING in lieu of Procurement. There is a distinct difference:

These comparative lists denote the difference in practices between these definitions and their respective execution and results/contribution.

IMPORTANCE OF PROCUREMENT:

• It is an organization that acts as a STRATEGIC FUNCTION interacting with all of supply chain Facets.
• They act as a monitoring and measurement function by maintaining a Scorecard for the suppliers.
  • Their response to the monitoring requires immediate corrective action to supplier performance issues.
• They must respond to changes in quantity and delivery needs from internal customer.
• Contribution to the bottom line is noted below as it relates to the direct impact by Procurement:
  • Simplified Income statement
    • Sales$100
    • Cost of goods sold
      • Purchases$50
      • Other expense$40
      • Total Expenses $90
    • Profit before tax$10
    • To increase profit $1 (10%) Requires Sales to be increased (10%) to $110. Cost would also increase correspondingly.
  • Modified Statement - (Reflecting a Reduced Purchase cost) If we can reduce the cost of purchases from $50 to 49, a 2% reduction, it would gain the same 10% profit (see below).
    • Sales$100
    • Cost of Goods Sold
      • Purchases$49
      • Other expense 40
      • Total expenses $89
    • Profit before tax $11

The above facts demonstrate the valuable contribution Procurement brings to an enterprise and the Supply Chain.