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Procurement Process in Supply Chain Management: What Is It?

In the world of construction, the procurement process plays a central role in supply chain management, often serving as the backbone of successful projects.

It’s a complex operation of sourcing, purchasing, and managing resources, all of which are critical to the smooth running of any construction endeavour.

The procurement process involves careful strategy, meticulous planning, and efficient execution, ensuring that every element, from raw materials to skilled labour is available precisely when and where needed.

Without a well-oiled procurement process, the construction project can easily veer off course, leading to delays, cost overruns, and a host of other challenges that no project manager wants to encounter.

In this blog post, we will cover the differences between supply chain management and procurement and the role each plays in construction projects. Keep reading to find out more.

What is supply chain management?

Supply chain management (SCM) is a holistic approach to overseeing and managing the flow of goods and services in a company.

It includes all the activities necessary to transform raw materials into a final product, right from the procurement of raw materials, inventory management, and production scheduling to the delivery of the final product to the customers.

SCM plays a pivotal role in smoothly coordinating these processes and addressing potential issues, thereby ensuring operational efficiency and customer satisfaction.

It’s not just about getting the right product to the right place at the right time; it’s also about doing so in the most cost-effective manner possible.

Five steps of supply chain management

The five steps of supply chain management are crucial for ensuring the seamless operation of a business, with each step interlinking with the next to create a continuous cycle of efficiency and customer satisfaction.

  1. Plan stage: A strategy is devised to manage all the resources necessary to meet customer demand.
  2. Source stage: Choosing suppliers to provide the goods and services necessary to create the product.
  3. Make stage: The product is manufactured, tested, packaged, and scheduled for delivery.
  4. Deliver stage: Often referred to as logistics, where customer orders are processed and products are dispatched and delivered.
  5. Return: Businesses manage customer feedback and handle returns or product issues efficiently.

What is procurement?

Procurement, in the context of the construction industry, is a strategic procedure that involves purchasing and acquiring all necessary goods, services, and work essential to carrying out a construction project.

This includes not only tangible elements like building materials and equipment but also intangible services such as design, planning, and project management.

The procurement process plays a crucial role in ensuring that projects are completed on time and within budget while also adhering to specified quality standards.

It involves selecting suppliers, negotiating contracts, placing orders, and overseeing delivery, all while aiming to achieve the best possible cost-effectiveness and value for money.

Why is the procurement process important?

The procurement process is a lynchpin in the construction industry, critically influencing the project’s success.

It’s this process that determines the quality and cost-effectiveness of the resources used in construction, directly impacting the project’s timeline, budget, and quality standards.

A well-managed procurement process can help mitigate project risks by preventing cost overruns and delays and ensuring that the best materials and services are secured to deliver a high-quality construction project.

The procurement process also promotes fairness, transparency, and ethical practices in sourcing, which contribute to a company’s reputation and relationships with suppliers.

Overall, efficient procurement is a vital strategy for construction projects to be successful, sustainable, and profitable.

Different types of procurement

In any construction project, many types of procurement can be used, depending on the task at hand within the project.

These include direct procurement, indirect procurement, service procurement, and goods procurement.

Direct procurement

Direct procurement refers to the acquisition of goods, services, or works from an external source that is directly incorporated into the production or service-provision process.

In the context of a construction project, this could be the procurement of raw materials like cement, steel, or timber, or services such as architectural design, engineering consultancy, or specialised trade services.

The efficiency of direct procurement can significantly impact the project’s timeline, budget, and overall performance, given that these procured goods and services directly contribute to the construction of the final project.

Therefore, strong supplier relations, accurate demand forecasting, and effective contract management are essential aspects of direct procurement.

Indirect procurement

Indirect procurement, on the other hand, pertains to the acquisition of goods, services, or works that support the operations of a construction project but are not directly incorporated into the final structure.

This can include office supplies, safety equipment, cleaning services, and IT support.

As its name suggests, indirect procurement doesn’t directly impact the construction process or the company’s bottom line, but it is nonetheless crucial for maintaining a productive and efficient work environment.

It requires strategic planning and management to ensure the availability of resources when needed, minimise costs, and avoid disruptions in the project’s daily operations.

Services procurement

Services procurement involves the sourcing and hiring of external services that provide specialised skills or expertise to support the project.

This could include architectural and engineering consultancy, legal advisory, safety inspections, or even waste disposal services.

The objective is to ensure that all necessary people-based services, whether they directly contribute to the construction process or support the project’s operations, are procured efficiently and effectively.

This helps in optimising costs, ensuring the timely completion of projects, and maintaining the desired quality standards.

Goods procurement

Goods procurement pertains to the process of sourcing and purchasing physical items that are essential for a construction project.

These can range from raw materials such as concrete, steel beams, and electrical fittings to machinery, tools, or even safety gear for workers.

In the context of construction, effective goods procurement is fundamental to project success, influencing factors such as project timelines, budgetary compliance, and final build quality.

Therefore, companies must establish a solid goods procurement strategy, which involves careful supplier selection, effective negotiation, timely ordering, and diligent management of deliveries.

The role of procurement in supply chain management

Procurement is a critical component of supply chain management, particularly in the construction industry. It acts as a bridge that connects the demand for goods and services with the supply side.

Starting from identifying potential suppliers, negotiating terms, and finalising contracts to managing relationships, procurement plays a pivotal role in maintaining a robust supply chain.

It’s the procurement team’s role to meticulously evaluate supplier performance, ensure contractual obligations are met, and manage any risks associated with supply chain disruptions.

Procurement ensures that all necessary materials, services, and works are sourced efficiently and cost-effectively and delivered right on time.

Better yet, robust procurement practices help forge strong relationships with suppliers, foster collaboration, and promote mutual growth.

In essence, procurement acts as the lifeblood of the construction project lifecycle, ensuring a seamless flow of resources from suppliers to the construction site that can drive cost savings, enhance quality, and facilitate timely project completion.

The difference between procurement and supply chain

While procurement and supply chain management are closely intertwined, they’re not the same.

Procurement is a crucial part of supply chain management, focusing on the process of sourcing and acquiring the materials and services needed for a construction project. It involves activities such as supplier selection, contract negotiation, cost control, and quality management.

On the other hand, supply chain management encompasses a broader scope, including every stage of the project’s operation.

In construction, supply chain management includes procurement but also extends to areas such as logistics, operations, inventory management, and customer service.

An effective supply chain in the construction sector would ensure smooth operations, from the sourcing and storing of raw materials through the building process and, ultimately, the delivery of the completed structure.

In this sense, we could say procurement is a function within the supply chain, a cog in a much larger mechanism.

Both, however, are crucial to the successful completion of a construction project, with each playing a distinct role that supports the overall operation.

Essentially, if procurement is the heartbeat, then supply chain management is the whole circulatory system, ensuring the efficient flow of materials, information, and finances to deliver successful construction projects.

Full end-to-end control of your supply chains

Thank you for reading our post on the procurement process in supply chain management.

Compliance Chain is a trusted platform used by leading construction companies to help monitor their supply chains and the multitude of risks associated with failing to remain industry-compliant.

The easy-to-use platform ensures a smooth, end-to-end supply chain management process that allows buyers to correctly identify compliant suppliers, assess any potential risks and manage each step of the supply chain.

Suppliers with a gold Compliance Chain membership can use the platform to demonstrate their compliance with industry standards and win more contracts with ease due to their transparency.

Sign up for Compliance Chain today to discover more about our industry-defining platform, or get in touch with a member of our experienced team to find out more about how you can effectively manage your supply chain.

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