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Supply Chain Terminologies

Procurement refers to the process of identifying, shortlisting, selecting, and acquiring, (ISSA) suitable goods or services from an outside source. Activities like contract management, receiving & storing, payment & evaluation comes under ambit of procurement.

Purchasing is a small subset of the broader procurement function, associated with acquiring the goods and services, and the process includes activities like ordering, expediting, receiving, and fulfilling payment.

Inventory management is the systematic approach of managing (planning + coordinating + controlling) the storage and movement of inventory. Most often Inventory Management is considered a part of the procurement function.

Inventory reduction Techniques-

  • Supplier Lead Time Reduction
  • Eliminating Obsolete Inventory
  • Optimising Ordering Quantity and Ordering frequency
  • Centralised Inventory Control

Supply Chain refers to the flow of goods/services/information from point of origin to point of consumption.

Supply Chain Management – Planning and execution of issues related to management of supply chain – spans all movement and storage of RM+WIP+FG from point of origin to point of consumption.

Material Management refers to the activity that controls and manages the movement of materials from procurement to production to distribution.

Logistics deals with managing and implementing procedures for efficient storage and transportation from source of material to end customers. Transportation only deals with the movement of goods.

Vendor development is a techniques of strategic sourcing, which improves the value we receive from suppliers. Vendor Development can be defined as any activity that a Buying Firm undertakes to improve a Supplier’s performance and capabilities to meet the Buying Firms’ supply needs.

Sourcing Cycle (another post)

Strategic sourcing is a systematic approach to gain long term and sustainable benefit from sourcing. Benefits are increased cost savings, better alignment of Sourcing and Business Objectives, Supplier optimization and improved Supplier relationship.

Steps – Spend Analysis -> Categorization -> -> Market Analysis (major player, trends etc.) -> Strategy (Kraljic Matrix) -> RFx/Vendor Selection/Contract/Execution -> Benchmarking

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