An explainer from Canada’s specialist recruiters in the field.
On the Argentus blog, we dig into Supply Chain and Procurement issues from the perspective of talent. In our posts, we can dive quite deep into particular topics. But every once in a while, it helps to take a step back and examine our basic vocabulary. Even though Supply Chain Management and Procurement are well-established fields, we still encounter people who don’t quite know the difference. We also encounter disagreement.
Procurement and Supply Chain Management are more important than ever before, as strategic contributors to almost every business in the world—not to mention governments and public sector agencies. They’re also core verticals of our recruiting practice. So we’re writing this post as an explainer for anyone who’s unsure of the distinction between the two. If you’re encountering these terms for the first time, let this be an introduction. If you’re already a supply chain pro, we hope this sparks some discussion about the relative role of each discipline, in different industries.
So what exactly counts as Supply Chain Management, and what counts as Procurement? What are their relative roles in companies?
As mentioned, there’s often disagreement about these terms. We don’t claim to be an absolute authority, and you can certainly provide a different interpretation. But we’ve been recruiting in these areas for over 20 years, so we thought it would be useful to weigh in with how we see the distinction.
On a basic level, the definitions are fairly clear:
- Procurement is the purchasing and acquisition of goods and services that a business requires.
- Supply Chain Management is the wider scope of bringing products to market. It includes Procurement, but also includes all the many other tasks involved in getting a product from raw materials suppliers, to manufacture, to the consumer (whether it’s through eCommerce, retail, wholesale distribution or other channels).
In theory, it comes down to this: Procurement is a discipline within the larger function of Supply Chain Management.
In practice, things get a little bit more complicated.
Here’s an example: Companies often title their jobs in a way that feels “backward” to the traditional definitions of the term. Sometimes a company will hire a Buyer (a Procurement title), whose job description also includes things like logistics, inventory planning, and other things traditionally associated with the broader supply chain. Conversely, sometimes a company will hire a Supply Chain Manager whose sole accountability is sourcing and purchasing goods, without managing logistics or transportation. This can make it confusing for candidates applying for jobs.
We’d love for there to be a one-size-fits all definition that everyone agrees on. It would certainly make our jobs as recruiters easier. But every organization is different. Every industry is different. So they sometimes see their roles — and terminology — differently.
When it comes to explaining the difference, it’s helpful to think about industries. What exactly is the business, and what exactly is their goal?
Exploring Companies Focused on Supply Chain Management:
Companies that bring physical products to the marketplace are more likely to have complex Supply Chain roles and organizations. This will include Procurement, (which was historically known as “Purchasing” in an era when Procurement was less strategic, and which you might still see). These companies need to buy raw materials for production and/or finished goods (known as “direct” Procurement), as well as the goods and services required for company operations (known as “indirect” Procurement).
But these companies also include the other tasks required to turn those raw materials or finished goods into a saleable product, and deliver it into a customers’ hands. Functions like Logistics, Inventory Management, Transportation, Warehousing, and others are additional Supply Chain functions.
A smaller company will tend to have fewer supply chain employees, and they are more likely to wear many hats. The larger the company becomes, the more likely they are to have dedicated employees or even entire departments for these functions—or to outsource them to 3rd party providers. (This also becomes an issue when these functions are “siloed” or separated in large companies. A lack of collaboration between supply chain functions can cause inefficiencies, as well as a lack of strategic insight and oversight that causes supply chain problems).
All of which is to say that these industries tend to think of Procurement within the wider umbrella of Supply Chain Management. These industries tend to include: Food Production, Consumer Goods Production, Pharmaceuticals, Cannabis, Retail, Restaurants, Electrical Manufacturing, Aerospace, Textiles, Furniture, and 3rd Party Logistics. Note: These industries will also have indirect Procurement needs, especially at larger companies, which brings us to:
Exploring Companies Focused on Procurement:
What if your company brings physical products to market, but is large enough that you have massive expenditure on company operations (“indirect” spend)? What if your company doesn’t bring physical products to market? In both cases, you still need to focus on strategic Procurement for everything your company buys. Even though Procurement is often seen as being a part of supply chain, there’s a crucial and strategic area where it actually sits outside of it: indirect Procurement.
The larger a company becomes, the more they spend on everything. Office supplies, facilities, information technology, real estate, construction, marketing, benefits, and other goods and services. In the old days—or at less advanced Procurement organizations—companies bought these goods and services in an ad-hoc way. If your department needed supplies, or janitorial services, you’d just buy them. Strategic Procurement arose from the realization that companies could be more thoughtful about this spend.
If your company is very large, it makes more sense to procure these goods and services for the entire company. You can save money with economies of scale. You can make sure your company buys from suppliers who match your company values. And you can build relationships with those suppliers to find opportunities for innovation. If you’ve heard the term strategic sourcing, this is what it refers to. Organizations created Procurement departments full of individuals who are skilled at:
- Understanding the needs of stakeholders in a company (the aforementioned departments)
- Researching and identifying suppliers
- Navigating the process around letting those suppliers compete for their business
- Negotiating with suppliers for the best rates and service levels
- Developing and executing contracts around what will be bought
- Managing supplier relationships to get extra value
- Building contingencies for when there’s disruption
- In the public sector, working within regulations around responsible use of taxpayer dollars
Among other tasks. For large organizations who deliver a service rather than a product, Procurement has evolved into its own highly complex, highly strategic function. They may not have a physical supply chain, but there’s tremendous value in becoming smarter about how they buy everything else that keeps the operation moving. As mentioned before, companies with physical supply chains will also have Procurement. But large-scale, centre-led Procurement is crucial in a host of other industries as well, including the Public Sector (Government Agencies, Crown Corporations, Municipal Agencies), Financial Services, Insurance, Technology, Healthcare, Management Consulting, and others.
When these service-based companies talk about Procurement, it’s not a sub-discipline of supply chain management. It’s a holistic effort to manage the company’s spend for everything they require to operate.
Implications for Hiring:
At Argentus, we describe ourselves as “recruiters specialized in Supply Chain and Procurement.” Even though, as we discussed, supply chain organizations include procurement, we separate it out to show our focus on Procurement as a separate function within different industries. We have just as many clients for indirect Procurement as we do for Supply Chain.
In terms of talent, there are quite a few areas of overlap between Supply Chain and Procurement. After all, both are focused on the “supply” side of the supply/demand equation that every organization has to navigate. The core skillsets for Procurement are often transferrable between these two sides of the coin. But many companies see “direct” and “indirect” Procurement as mutually exclusive skillsets. If you manufacture food, you want the commodity manager you hire to have a deep understanding of the marketplace for say, grains, dairy, produce or protein. If you’re a financial services company looking for someone to help centralize and develop your marketing spend, someone who has purchased raw materials for a food manufacturer doesn’t add as much value as someone who has a strong understanding of marketing. And the world of Supply Chain Management contains many disciplines that Procurement doesn’t cover — many which can be whole careers in and of themselves.
As a result, when you hire, you’re drawing from two mostly different talent pools. And when you’re looking for a job, think about where you want to fit into this mosaic. Our advice? Look to the industry.
To help drive home the distinctions, here’s our list of the core competencies for Procurement, as well as for Supply Chain Management. Hopefully it helps you see the overlap, as well as the differences:
Core disciplines for Procurement include: purchase orders, RF(x) management, bid solicitation, vendor management, contract management, strategic sourcing, supplier relationship management, environmental, social & governance procurement (ESG), public sector procurement, procurement ethics. It also includes the implementation and management of digital systems related to these functions (E.g. Procure-to-Pay software, Enterprise Resource Planning).
Core disciplines for Supply Chain Management include: purchasing (raw materials and finished goods), indirect Procurement, logistics, transportation, warehousing, customs, shipping, supply planning, inventory planning, demand planning, sales and operations planning, network design, manufacturing, production scheduling, production planning, continuous improvement (e.g. Lean Six sigma), and others. It also includes the implementation and management of systems related to digitally managing these functions (e.g. Enterprise Resource Planning, Materials Management, Manufacturing Resource Planning, Warehouse Management Systems, Transportation Management Systems).
We hope you found this guide useful! Do you have anything to add, or disagree with our definitions? Let us know in the comments! And if you have any questions about the differences between supply chain and procurement, either in your own hiring, or as you seek to develop your career, reach out to Argentus!