University of Science and Technology Chittagong

Faculty of Business Administration

Managerial Management

Assignment

Submitted to: Submitted by:

Dr. Mohammad Sahabuddin PRANAB DHAR
Assistant Professor and Head Roll: 616
Business Administration Batch:28
USTC Executive MBA for Engr.
 Assignment

Assignment Topics:

Sl. No Topics Details Page no

1. What is procurement and how it works? 02
2. What is SCM and it functions? 03
3. Similarity and differences between procurement and SCM. 04
4.a) Direct procurement Vs Indirect procurement. 05
4.b) Sourcing Vs Procurement 06
4.c) procurement Vs Purchasing 06

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1. What is procurement and how it works?

“Procurement” is defined as: “the action of obtaining or procuring something” or “the action or
occupation of acquiring military equipment and supplies”.
Procurement is most commonly associated with businesses because companies need to solicit services
or purchase goods, usually on a relatively large scale. It can also include the overall procurement process,
which is critically important for companies leading up to their final purchasing decision. Companies can
be on both sides of the procurement process as buyers or sellers though here we mainly focus on the side
of the soliciting company.
Types of Procurement
There are a few different kinds of procurement that businesses can undertake. These include:

 Direct Procurement: This kind of procurement involves any goods and services used during
the production process. This includes raw materials, machinery, and other components.
 Indirect Procurement: Goods and services purchased under this type of procurement are used
to meet the operational needs of a business. As such, they don't contribute to the company's
revenues. This may include office equipment and supplies, furnishings, and marketing.
 Goods Procurement: Any physical products that businesses acquire through the procurement
process to serve the needs of the business. This can be direct or indirect, such as raw materials
and office supplies, respectively.
 Services Procurement: Like goods procurement, there are two types of services procurement:
direct and indirect. Both rely on services provided by people. Direct services procurement may
refer to labor that is directly involved in the business. Indirect services procurement can include
things like on-site security to safeguard the premises.
How Procurement Works
Procurement and procurement processes can require a substantial portion of a company’s resources to
manage. Procurement budgets typically provide managers with a specific value they can spend to procure
the goods or services they need. The process of procurement is often a key part of a company's strategy
because the ability to purchase certain materials or services can determine if operations will be profitable.
In many cases, procurement processes will be dictated by company standards often centralized by
controls from the accounts payable (AP) division of accounting. The procurement process includes the
preparation and processing of a demand as well as the end receipt and approval of payment.
Comprehensively, this can involve purchase planning, standards, specifications determination, supplier
research, selection, financing, price negotiation, and inventory control. As such, many large companies
may require support from a few different areas of a company for successful procurement.
There are several steps involved in the procurement process:

 Choosing the goods and services required

 Fill out a purchase request and request quotes from various suppliers
 Work out a price and contract with the vendor, and complete the purchase order
 Receive the shipment and submit payment
The steps in the procurement process vary depending on business objectives and requirements. The
typical procurement process includes:
i. Identifying the needs of goods and services
To start the procurement process as a company, first step is to identify a need for a product or service.
Whether it's a recurring purchase or a brand new order, companies usually analyze their needs and check
existing products or services before creating a request for purchase. Depending on the type of needs, this
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process may involve various departments within the company. It might conduct discussions between
departments to research market requirements, assess the business necessity and compile an audit of
competitors.
ii. Finding suppliers
Once identify the needs of the company for which need to work, the next step is to find relevant suppliers.
Companies usually use a request for information (RFI) document to compare potential
suppliers. RFI allows companies to ask for information from potential suppliers about their products or
services. Usually send this document early in the procurement process, with the purpose of collecting
information about a supplier's ability to meet the company's needs and resolve unique problems.
iii. Requesting proposals or quotations
Once the vendor or company returns the RFI to the company, the next step is to issue a request for
quotation (RFQ). An RFQ is a document that the company submits to potential suppliers asking for price
quotations for a product or service. It seeks an itemized list of prices for something that is quantifiable
and well-defined, such as hardware. During the RFQ stage, you may complete a business deal either
through direct negotiation or auction.
iv. Evaluating tender
Once chosen the company's suppliers, you can begin the tender evaluation process. The tender evaluation
process includes assessing the supplier's quality of service or products, timescales, fulfillment
capabilities and financial details. It may also include cost evaluation, sample trial of the product or
service, price comparison and supplier audit.
v. Agreeing on terms and conditions with suppliers
The next step is to arrange the procurement contract. The procurement contract specifies the terms and
conditions of the procurement, including agreed, costs, timescales and required stock levels to minimize
risks. You can use the terms and conditions outlined in the procurement contract as a marker against key
performance indicators (KPIs), which can allow you to manage supplier relationships and address any
potential problems that may occur during your company's procurement process. Maintaining a good
relationship with key suppliers can play a vital part in future procurement needs.
vi. Arranging and receiving products or services
At this stage, the supplier delivers the promised products or services within the specified timeline. After
receiving them, your company's purchasing officer checks the order and notifies the supplier of any
issues. The supplier may also perform installation and training.
vii. Conducting quality assurance
To determine if you want to reorder the product or service and continue with your supplier, now need to
review your experience through rigorous quality assurance.
2. What is SCM and it functions?
Supply chain management is the management of the flow of goods and services and includes all
processes that transform raw materials into final products. It involves the active streamlining of a
business's supply-side activities to maximize customer value and gain a competitive advantage in the
marketplace.
The main objectives of supply chain management involve the management of a wide range of
components and processes, such as storage of raw materials, managing the inventory, warehousing, and
movement of finished goods from the point of manufacture to the point of consumption. In economic
terms, it can be referred to as the design, planning, management, and execution of supply chain activities
from the point of production to the point of sale.
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Supply Chain Management Functions

On a broader level, supply chain management consists of these four major functions and key element
components, such as:
Integration
This forms the crux of the supply chain and is meant to coordinate communications to produce effective
and timely results. It can include innovation of new software or advanced technological processes to
improve communications.
Operations
This involves management of day to day operations in the ecommerce business. For example, it may
deal with keeping an eye on the inventory or coming up with marketing approaches.
Purchasing
This deals with the purchasing decisions and management, such as purchasing raw materials, source
materials and so on.
Distribution
This deals with the management of logistics across wholesalers, retailers, and customers. This may mean
keeping an eye on the shipment, and other details.
In addition to these, there are also some subsidiary functions that an effective supply chain management
process fulfills, such as:

 Aligning distribution flows

 Integrating the functions from manufacture to delivery
 Designing complex and advanced systems
 Managing and coordinating resources
If you get the basics right and manage your supply chain in the right way, you will surely enjoy good
profits. Always remember that proper planning and implementation are the keys to successfully
achieving the objectives of supply chain management.
3. Similarity and differences between procurement and SCM.
Procurement’s main stages are preparation and processing of a demand, end receipt, and payment
approval. In the overall supply chain process, procurement stops once the company possesses the
required materials or services. The main objective of the procurement is to ensure the buyer receives
goods or services at the best possible price when aspects such as quality, quantity, time, and location are
compared.
supply chain is the network of manufacturers, suppliers, logistics providers and other people involved in
getting your product in the hands of a customer. Supply chain incorporates not only raw material
gatherers, transportation companies and wholesale warehouses, but also tasks and functions that
contribute to moving the following product. These tasks represent quality control, marketing,
procurement and sourcing.
The differences between Procurement and Supply Chain Management:

 Procurement supports the functions of your business by offering the inputs needed to run day-
to-day operations.
 Supply chain management addresses how those inputs are transformed into end products and
delivered to consumers.

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 Procurement exists as a branch of supply chain management, and it narrows down to getting
goods to buyers.
Procurement and supply chain management are related, but there are some subtle differences between
the two processes. Procurement is how a company sources goods and services from external suppliers,
while supply chain management is the management of all the processes and steps that must be taken to
transform raw materials into final products and deliver them to customers.
Procurement is a subset of processes within supply chain management that focus on the identification
and acquisition of goods. Supply chain management is a broader set of processes that also includes
vendor selection, logistics, invoicing, and distribution
Procurement and supply chain management are similar in various ways. Here’s an overview of the
similarities between procurement and supply chain management;

 Both procurement and supply chain management help in delivering the goals and targets of your
business.
 Procurement and supply chain management are both internal operations and may hence require
external stakeholder inputs, but their core still remains within your organization.
 Procurement and supply chain management should be managed proactively so as to support the
operations of your business.
Difference:

Parameter Procurement SCM

Create a purchase requisition Audit the delivered order Procure raw materials
Research the market Receive GRN and invoice Send it to supplier
Shortlist suppliers Perform 3-way match Start manufacturing
Negotiate Make payment Kickstart distribution
Create a Purchase order Keep record Store in retail location
Expedite and receive the Asses supplier performance Customers can now buy
ordered items

4. (a) Direct procurement Vs Indirect procurement.

Direct Procurement: When a company buys direct materials essential to its production process and
revenue.
Examples:

 A bakery buys flour and sugar to produce cupcakes using direct sourcing
 A construction company buys concrete, cement, and subcontracted labor to construct a building
 A steel mill buys raw materials (iron) and equipment (a blast furnace) to produce steel

Indirect Procurement: When a company buys indirect materials that are not directly related to the
production process but only facilitate it.
Examples:

 A bakery buys drinking water for its staff

 A construction company pays rent and utility bills
 A steel mill pays for fuel for transporting raw materials

Difference:

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Direct Procurement Indirect Procurement

Impacts the finished product and the company’s Helps run the daily operations of a business.
bottom line.
Essential to the business Not very critical to business
Direct procurement materials become a part of Indirect procurement items have nothing to do
the finished product. with the finished product.
Usually procured in large quantities with less Usually procured in small quantities with high
frequency. frequency.
High priority and high percentage of the Low priority and is often overlooked.
company’s cost are allocated
Egs: Cement for construction and fabric for Egs: Stationary and office supplies.
clothes.

4. (b) Sourcing Vs Procurement

Sourcing is the process of vetting, selecting, and managing suppliers who can provide the inputs an
organization needs for day-to-day running. Sourcing is tasked with carrying out research, creating and
executing strategy, defining quality and quantity metrics, and choosing suppliers that meet these criteria.
Procurement is the process of acquiring the goods and services an organization needs for its operations.

Sourcing Procurement
Sourcing takes care of everything from finding suppliers, Procurement involves procuring
vetting & contracting them, and maintaining a healthy chain goods and services needed for the
of vendors to cater to the organizational needs organization.
Focuses on the who that makes the supplies possible Focuses on the what of supplies
Sourcing is concerned with building and managing supply Leverages supply chains to ensure a
chains steady flow of inputs and supplies to
the organization.
Sourcing manages supply chains and builds alternatives for Procurement is primarily concerned
resilience with running already created supply
chains.

4. (c) Procurement Vs Purchasing

Purchasing is the process of acquiring goods and services on behalf of the business. It can be done
through direct purchases from suppliers, intermediaries, formal contracts, or informal arrangements. The
goal of purchasing is to obtain lower costs and faster delivery times. Purchasing can also involve issuing
written contracts between buyers and sellers.
Procurement is the process of acquiring the goods and services an organization needs for its operations.
Procurement and purchasing are two processes that are done during the process of acquiring goods and
services for an organization. However, they vastly differ in their method and approach. This table
represents the key differences between procurement vs purchasing:

Procurement Purchasing
Activities related to acquiring goods and services Functions associated with buying goods and
services
Steps that happen before, during, and after The straightforward process of purchasing
purchase commodities
Used in a production environment (internal Used in a wholesale environment (external
process) process)
Puts more importance on an item’s value than its Tends to focus more on the item’s price than its
cost value

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Refers to a set of tasks that spot and fulfill needs Refers to the specific task of committing
expenditure
Includes need recognition, sourcing, and contract Includes ordering, expediting, and payment
closure fulfillment
Follows a proactive approach to spot and fulfill Follows a reactive approach to satisfy internal
needs needs
Relational–focuses on creating long-term vendor Transactional–focuses on transactions than vendor
relationships relationships

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Source:
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3. https://www.shiprocket.in/blog/supply-chain-management-functions/
4. https://humanitarianglobal.com/similarities-between-procurement-and-supply-chain-
management/#:~:text=Both%20procurement%20and%20supply%20chain,still%20remains%2
0within%20your%20organization.
5. https://kissflow.com/procurement/difference-between-procurement-and-supply-chain-
management/
6. https://www.pipefy.com/blog/procurement-supply-chain-management/
7.

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