Supply Chain Management (SCM) is a critical component of any business, as it affects everything from production and manufacturing to delivery and customer satisfaction.
Material procurement is one of the most noteworthy aspects of supply chain management strategy, as it directly affects a company's ability to meet customer demand and maintain a competitive advantage in the market.
In this blog, we will explore why material procurement is so important and what businesses need to know in order to ensure the success of their procurement process management.
What is Material Procurement?
Material procurement refers to the process of acquiring raw materials, supplies, and components needed for production and manufacturing.
It's a critical function that ensures that a business has the resources it needs to operate efficiently and effectively. In this blog, we'll discuss the various stages involved in material procurement and what businesses need to know to get the best results from their procurement processes.
The first stage of material procurement is the identification of the raw materials, supplies, and components required for production.
This stage involves determining the quantity, quality, and specifications of the materials needed, as well as the time frame for delivery. It is crucial to consider the long-term demand for the materials, as well as the potential for fluctuations in the market.
The second stage of material procurement is the sourcing of the materials. Procurement process management involves researching potential suppliers, evaluating their offers, and selecting the best option based on a number of factors, such as price, quality, delivery time, and reliability.
Businesses can choose to source materials directly from suppliers or through intermediaries such as wholesalers or distributors. In some cases, businesses may even choose to produce the materials in-house.
The third stage of material procurement is the negotiation of the terms and conditions of the agreement with the supplier.
This stage involves establishing the price, delivery terms, payment terms, and any other relevant conditions.
It's important to ensure that the agreement is legally binding and that all parties understand the terms of the agreement.
The fourth stage of material procurement is the placement of the order and the delivery of the materials.
This stage involves communicating the order to the supplier, arranging for the delivery of the materials, and receiving and storing the materials in a secure and controlled manner.
It's important to have a system in place for tracking the delivery of materials, as well as for tracking the inventory of materials once they have been received.
One of the key factors in successful material procurement process management is having accurate and up-to-date information about the materials being procured.
This includes information about the materials themselves, such as their specifications and quality, as well as information about the suppliers, such as their financial stability and delivery times.
Having access to this information allows businesses to make informed decisions about which materials to purchase and from whom.
Another important factor in material procurement has a system in place for tracking and managing the procurement process.
This can include using software or other technology to manage the process, as well as having clear procedures and processes in place for tracking and monitoring the delivery of materials and the payment of suppliers.
This can help to ensure that the procurement process runs smoothly and that the materials are delivered on time and within budget.
Why is Material Procurement one of the most important aspects of SCM?
Supply chain management strategy is important for businesses to have a reliable and efficient procurement process in place in order to ensure that they have access to the required materials when they need them.
Without effective material procurement, a business may face challenges such as stock shortages, production disruptions, and late deliveries, all of which can negatively impact the company's bottom line.
One of the key reasons why material procurement is so important is that it directly affects a company's ability to meet customer demand. If a company is unable to secure the materials it needs to produce its products, it will not be able to meet customer demand and may lose market share to its competitors.
Additionally, if the procurement process is not efficient and well-organised, the company may struggle to keep up with customer demand, leading to long lead times and frustrated customers.
Another reason why material procurement is so important is that it affects the cost of production. The cost of raw materials can have a significant impact on a company's overall production costs and, therefore, its profitability. By optimising the procurement process and securing the best possible prices for raw materials, companies can reduce their production costs and improve their bottom line.
Additionally, by having a well-managed procurement process in place, businesses can avoid overstocking or understocking materials, both of which can be costly and disruptive.
Material procurement also plays a key role in risk management. The procurement process involves sourcing materials from suppliers, and it is essential for businesses to choose suppliers that are reliable and financially stable.
If a supplier goes bankrupt or experiences financial difficulties, it can impact the delivery of materials and disrupt the production process. By carefully selecting suppliers and regularly monitoring their financial stability, businesses can minimise the risk of supply chain disruptions and ensure that they have access to the materials they need to meet customer demand.
In conclusion, material procurement is a critical function for businesses in a variety of industries. It involves several stages, including the identification of materials, sourcing, negotiation, and delivery.
To be successful, businesses need to have a supply chain management strategy which holds accurate information about the materials being procured, a system for tracking and managing the procurement process, and an awareness of the environmental and social implications of the procurement process.
By taking these factors into account, if your ambition is to become a chief supply chain officer, you can opt for Imarticus’ IIM supply chain management course. This programme offers all the resources that you need to learn to operate effectively and efficiently and to contribute to a sustainable future.