Supply Chain Management

2. Effective supply chain management requires careful coordination of the inbound system of logistics, which is frequently referred to as materials management, and the outbound system, which is usually physical distribution.

Materials management can be described as the planning and control of the flow of materials that are a part of the inbound logistics system. Materials management usually includes the following activities: procurement, warehousing, production planning, inbound transportation, receiving, materials quality control, inventory management and control, etc.

Effective procurement of goods and services contributes to the competitive advantage of an organization. The procurement process links members in the supply chain and assures the quality of suppliers in that chain. The quality of the materials and services, that are input, affects finished product quality and hence customer satisfaction and revenue. Input costs are a large part of total costs in many industries. With the importance of procurement as a determinant of revenues, costs, and supply chain relationships.

Procurement can be a complex process that is difficult at times to define, understand and manage. Depending on the circumstances, procurement can be defined, in a narrow sense, as the act of buying goods and services for a firm or, in a broader perspective, as the process of obtaining goods and services for the firm. The procurement process is, however, more than just an activity. It is the successful completion of a series of activities that often cut across organizational boundaries. To formalize the definition, then, procurement consists of all those activities necessary to acquire goods and services consistent with user requirements.

Porter, in his valve chain, identified the strategic importance of procurement, since it includes such activities as qualifying new suppliers, procuring different types of inputs, and monitoring supplier performance. As such, procurement serves as a critical connection between members in the supply chain.

The activities that follow for the procurement process apply to the purchase of both goods and services in industrial markets. These activities often cut across both functional boundaries and organizational boundaries and cannot be effectively completed without input from all parties involved in the transaction. The successful completion of these activities maximizes value for both the buying and selling organizations, thereby maximizing value for the supply chain. The related process can be broken down into a set of activities that include identifying a need, defining and evaluating user requirements, deciding whether to make or buy, identifying the type of purchase, performing a market analysis, identifying all possible suppliers, prescreening possible vendors, evaluating remaining supplier, choosing a vendor, receiving delivery of the product or service and