Supply management
Encyclopedia
The term supply management describes the methods and processes of modern corporate or institutional buying. This may be for the purchasing of supplies for internal use referred to as indirect goods and services, purchasing raw materials for the consumption during the manufacturing
process, or for the purchasing of goods for inventory
to be resold as products
in the distribution
and retail
process.
In many organizations, acquisition or buying of services is called contracting, while that of goods is called purchasing
or procurement
. The supply management function of an organization is responsible for various aspects of these acquisitions:
Supply management is generally regarded as a systematic business process that includes more functions than traditional buying, such as coordinating inbound and internal pre-production logistics and managing inventory.
Supply management deals primarily with the oversight and management of materials and services inputs, management of the suppliers who provide those inputs, and support of the process of acquiring those inputs. The performance of supply management departments and supply management professionals is commonly measured in terms of amount of money saved for the organization. However, managing risk
is one of the other critical aspects of supply management; especially the risk of non-availability at the required time of quality goods and services critical for an organization's survival and growth.
Prior to World War I, purchasing was regarded as primarily clerical.
During World War I & II – The function increased due to the importance of obtaining raw materials, supplies, and services needed to keep the factories and mines operating.
1950s & 1960s - Purchasing continued to gain stature as the techniques for performing the function became more refined and as the number of trained professionals increased. The emphasis became more managerial.
1970s & 1980s - More emphasis was placed on purchasing strategy as the ability to obtain needed items from suppliers at realistic prices increased.
1983 - In September 1983, Harvard Business Review published a ground-breaking article by Peter Kraljic on purchasing strategy that is widely cited today as the beginning of the transformation of the function from "purchasing," something that is viewed as highly tactical to supply management or procurement, something that is viewed as very strategic to the business
1990s - Supply management (procurement) starts to become more integrated into the overall corporate strategy and a broad-based
transformation of the business function is ignited, fueled strongly by the development of supply management software solutions which help automate the source-to-settle process
2000s - The leader of the supply management function within many enterprises is established with a C-Level title - the Chief Procurement Officer
(sometimes called the Head of Procurement). Publications, events, and websites that are dedicated solely to the advancement of supply management and Chief Procurement Officers arise. The global recession of 2008-2009 places supply management at the crux of business strategy.
2011 - With the advancement of social networks (facebook.com/supplymanagement), supply management professionals prefer to unite around common interests and values.
, a United States not-for-profit association that includes more than 40,000 members. It is affiliated with the International Federation of Purchasing and Supply Management, a union of local and national purchasing associations with approximately 200,000 members.
For companies seeking to fulfill diversity supplier spend commitments, the National Minority Supplier Development Council with 37 affiliated regional councils, was established in 1972 to assist in promoting supplier development of Asian, Black, Hispanic and Native American-owned businesses, and providing management training and capacity-building to minority business enterprises and corporate program staff.
Many certification programs are relevant to the supply management profession. Some are offered through non-profit associations, such as the Certified Purchasing Manager (CPM) and Certified Professional in Supply Management (CPSM) through the Institute for Supply Management. There are also for-profit companies who offer certification programs, such as Next Level Purchasing, Inc. who offers the Senior Professional in Supply Management (SPSM) Certification.
, though it can be considered a component of supply chain management. Conversely, where the supply management function is established as a C-level strategic effort, supply chain management is but one component of an overall strategic supply management approach. Supply management is a complementary discipline that encompasses the alignment of organizations, processes, and systems for strategic sourcing
, contract management
, supplier management, spend analysis
to continuously improve global supply for best-value performance in support of the strategic objectives of the business.
One report that focuses on a sub-set of the space is the "Magic Quadrant For Strategic Sourcing Application Suites, 2010,” a Gartner
research report, summarizes: "Sourcing applications provide a systematic and scalable means for organizations to manage the full sourcing process, including finalizing purchase specifications, selecting suppliers and negotiating prices....Most sourcing solution vendors bundle spend analysis, contract management and supplier
performance management tools into their suites." The Gartner report summarizes, "Best-of-breed providers with suites delivered via software as a service dominate the strategic sourcing application market, while ERP companies with integrated offerings are
gaining traction by providing tactical sourcing support." Gartner estimates the sourcing software market at close to a half-billion dollars in 2007 with an annual growth rate of 5%. According to Gartner, the research firm, leading providers of supply and contract management software include SAP
, Ariba
, BravoSolution
, Ivalua, AECsoft, Rosslyn Analytics and Emptoris.
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
process, or for the purchasing of goods for inventory
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
to be resold as products
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
in the distribution
Distribution (business)
Product distribution is one of the four elements of the marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user.The other three parts of the marketing mix are product, pricing,...
and retail
Retail
Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...
process.
In many organizations, acquisition or buying of services is called contracting, while that of goods is called purchasing
Purchasing
Purchasing refers to a business or organization attempting for acquiring goods or services to accomplish the goals of the enterprise. Though there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly between organizations...
or procurement
Procurement
Procurement is the acquisition of goods or services. It is favourable that the goods/services are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location...
. The supply management function of an organization is responsible for various aspects of these acquisitions:
- Working with business leaders who have identified a business need or requirement to identify, source, contract, and procure the needed good or service from qualified suppliers
- Managing supplier performance
- Implementing technologies, processes, policies, and procedures to support the purchasing process (Supplier Relationship Management).
- The supplier relationship management process: a process for providing the structure for how relationships with suppliers will be developed and maintained.
- Economic theories of supply and demand
Supply management is generally regarded as a systematic business process that includes more functions than traditional buying, such as coordinating inbound and internal pre-production logistics and managing inventory.
Supply management deals primarily with the oversight and management of materials and services inputs, management of the suppliers who provide those inputs, and support of the process of acquiring those inputs. The performance of supply management departments and supply management professionals is commonly measured in terms of amount of money saved for the organization. However, managing risk
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
is one of the other critical aspects of supply management; especially the risk of non-availability at the required time of quality goods and services critical for an organization's survival and growth.
History
Prior to 1900, purchasing was recognized as an independent function by many railroad organizations, but in few other industries.Prior to World War I, purchasing was regarded as primarily clerical.
During World War I & II – The function increased due to the importance of obtaining raw materials, supplies, and services needed to keep the factories and mines operating.
1950s & 1960s - Purchasing continued to gain stature as the techniques for performing the function became more refined and as the number of trained professionals increased. The emphasis became more managerial.
1970s & 1980s - More emphasis was placed on purchasing strategy as the ability to obtain needed items from suppliers at realistic prices increased.
1983 - In September 1983, Harvard Business Review published a ground-breaking article by Peter Kraljic on purchasing strategy that is widely cited today as the beginning of the transformation of the function from "purchasing," something that is viewed as highly tactical to supply management or procurement, something that is viewed as very strategic to the business
1990s - Supply management (procurement) starts to become more integrated into the overall corporate strategy and a broad-based
transformation of the business function is ignited, fueled strongly by the development of supply management software solutions which help automate the source-to-settle process
2000s - The leader of the supply management function within many enterprises is established with a C-Level title - the Chief Procurement Officer
Chief procurement officer
A Chief Procurement Officer is an executive role focused on sourcing, procurement, and supply management for an enterprise.Globalization, compliance pressures, supply market risk and procurement automation have simultaneously elevated the visibility of the procurement discipline within companies...
(sometimes called the Head of Procurement). Publications, events, and websites that are dedicated solely to the advancement of supply management and Chief Procurement Officers arise. The global recession of 2008-2009 places supply management at the crux of business strategy.
2011 - With the advancement of social networks (facebook.com/supplymanagement), supply management professionals prefer to unite around common interests and values.
Groups and certifications
The importance of supply management in global business has prompted the formation of professional organizations to address the need for higher levels of supply management skill and expertise. One of the largest of these is the Institute for Supply ManagementInstitute for Supply Management
Founded in 1915, the Institute for Supply Management is the first supply management institute in the world.ISM is a not-for-profit educational association that serves professionals and organizations with an interest in supply management in more than 80 countries...
, a United States not-for-profit association that includes more than 40,000 members. It is affiliated with the International Federation of Purchasing and Supply Management, a union of local and national purchasing associations with approximately 200,000 members.
For companies seeking to fulfill diversity supplier spend commitments, the National Minority Supplier Development Council with 37 affiliated regional councils, was established in 1972 to assist in promoting supplier development of Asian, Black, Hispanic and Native American-owned businesses, and providing management training and capacity-building to minority business enterprises and corporate program staff.
Many certification programs are relevant to the supply management profession. Some are offered through non-profit associations, such as the Certified Purchasing Manager (CPM) and Certified Professional in Supply Management (CPSM) through the Institute for Supply Management. There are also for-profit companies who offer certification programs, such as Next Level Purchasing, Inc. who offers the Senior Professional in Supply Management (SPSM) Certification.
Supply management
Supply management is different from supply chain managementSupply chain management
Supply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...
, though it can be considered a component of supply chain management. Conversely, where the supply management function is established as a C-level strategic effort, supply chain management is but one component of an overall strategic supply management approach. Supply management is a complementary discipline that encompasses the alignment of organizations, processes, and systems for strategic sourcing
Strategic sourcing
Strategic sourcing is an institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company. In a production environment, it is often considered one component of supply chain management...
, contract management
Contract management
Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and...
, supplier management, spend analysis
Spend Analysis
Spend analysis is the process of collecting, cleansing, classifying and analyzing expenditure data with the purpose of reducing procurement costs, improving efficiency and monitoring compliance...
to continuously improve global supply for best-value performance in support of the strategic objectives of the business.
Supply Management Software
Supply Management software comprises all of the different solutions which automate the source-to-settle process and include Spend Analysis, eSourcing, Contracts, Supply Base Management, eProcurement, eCatalogs (for Supplier Enablement), and Accounts Payable or ePayables solutions. Software which helps automate the management of complex services like business travel and temporary labor are also included in this software segmentOne report that focuses on a sub-set of the space is the "Magic Quadrant For Strategic Sourcing Application Suites, 2010,” a Gartner
Gartner
Gartner, Inc. is an information technology research and advisory firm headquartered in Stamford, Connecticut, United States. It was known as GartnerGroup until 2001....
research report, summarizes: "Sourcing applications provide a systematic and scalable means for organizations to manage the full sourcing process, including finalizing purchase specifications, selecting suppliers and negotiating prices....Most sourcing solution vendors bundle spend analysis, contract management and supplier
performance management tools into their suites." The Gartner report summarizes, "Best-of-breed providers with suites delivered via software as a service dominate the strategic sourcing application market, while ERP companies with integrated offerings are
gaining traction by providing tactical sourcing support." Gartner estimates the sourcing software market at close to a half-billion dollars in 2007 with an annual growth rate of 5%. According to Gartner, the research firm, leading providers of supply and contract management software include SAP
SAP AG
SAP AG is a German software corporation that makes enterprise software to manage business operations and customer relations. Headquartered in Walldorf, Baden-Württemberg, with regional offices around the world, SAP is the market leader in enterprise application software...
, Ariba
Ariba
Ariba is a software and information technology services company located in Sunnyvale, California.- Early life :Ariba was founded in 1996 by Bobby Lent, Boris Putanec, Paul Touw, Rob Desantis, Ed Kinsey, Paul Hegarty, and Keith Krach on the idea of using the Internet to enable companies to...
, BravoSolution
Bravosolution
BravoSolution is a supply management software and professional services provider.- Early life :BravoSolution was founded in 2000 in Milan, Italy by a multinational group of investors...
, Ivalua, AECsoft, Rosslyn Analytics and Emptoris.