What is 'Supply Management'

Supply management is the act of identifying, acquiring and managing the resources and suppliers that are essential to the operations of an organization. Also known as "procurement," supply management includes the purchase of physical goods, information, services and any other necessary resources that enable a company to continue operating and growing. The main goals within supply management are cost control, the efficient allocation of resources, risk management, and the effective gathering of information to be used in strategic business decisions.

Breaking Down 'Supply Management'

Supply management is more than simply buying raw materials or finished goods and contracting for services. It is a systematic business process that goes further than procurement to include the coordination of pre-production logistics and inventory management. Oversight and management are key aspects of supply management. That includes oversight and management of suppliers and their contributions to a company's operations, for example. Generally, supply management personnel within a company or institution are responsible for the following:

  • Identifying, sourcing, negotiating for and procuring a service or good that is essential to a company's ongoing operations according to the wishes of the organization's leaders and supervisors.
  • Formulating a strategy for developing and maintaining relationships with suppliers (and then executing on it), as well as holding suppliers accountable.
  • Utilizing technology and procedures that facilitate the procurement process.
  • Considering the theories of supply and demand and what influence they have on supply management.

Supply Management Success

Supply management divisions within large corporations can be very large, with huge budgets and hundreds of workers. Their success is usually measured by how much money they are able to save the company. A company's ability to execute on supply management goals can directly benefit the stock price by increasing metrics such as gross and net margins, cash flow, and cost of goods sold (COGS).

In addition, conducting proper risk management is equally important to a company's success. For example, anticipating and mitigating the impact of an unexpected interruption in the delivery of a key component can keep a company running smoothly. But the failure to account for risk in a company's supply chain can spell disaster.

While it is easy to understand how supply management directly affects the results of a large purchaser or a manufacturer, supply management is just as important to service-based firms. The internet, when paired with broad improvements to logistical networks worldwide, has helped turn supply management into a key strategic objective at most large companies, capable of saving millions and increasing efficiency company-wide.

RELATED TERMS
  1. Supply

    Supply is a fundamental economic concept that describes the total ...
  2. Operations Management

    Operations management is the administration of business practices ...
  3. Law of Supply and Demand

    The law of supply and demand explains the interaction between ...
  4. Law Of Supply

    Law of supply is a microeconomic law, stating that, all other ...
  5. Strategic Financial Management ...

    Strategic financial management involves the usage and management ...
  6. Logistics

    Logistics is the overall process of managing the way resources ...
Related Articles
  1. Personal Finance

    Supply Chain Management Jobs Are Booming

    There has been huge growth in supply chain management, both in the number of positions open and the range of responsibilities assigned to those positions.
  2. Personal Finance

    A project manager's qualifications and career path

    Learn about a project manager's job, the qualifications necessary for the position, and the most common careers for these professionals.
  3. Investing

    How Long Can Gas Stay Cheap?

    The current gas prices means a lot for the economy and our pockets. Let's explore how long we can expect gas prices to be low, what affects gas prices, and what changes might be in store.
  4. Investing

    Evaluating A Company's Management

    Financial statements don't tell you everything about a company's health. Investigate the management behind the numbers!
  5. Tech

    The Importance of Healthcare Risk Management

    Risk management is especially important in healthcare because human lives might be on the line. Here are some strategies to map out a plan.
  6. Insights

    4 Factors That Shape Market Trends

    Discover the four major factors that shape market trends: Government, international transactions, speculation/expectation, and supply and demand. These areas are all linked as expected future ...
  7. Investing

    10 Major Companies Tied to the Apple Supply Chain (AAPL)

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  8. Investing

    Why It Is Important to Follow Crude Oil Inventories

    Discover what oil inventories are, how they are communicated and what important insights they provide into the state of the oil market.
  9. Investing

    Do Your Research When Using an Active Manager

    When it comes to using active managers for your portfolio, it pays to do your research.
  10. Investing

    The Evolution Of Money Management

    We look at the development of the money management profession and how it impacts professional money managers today.
RELATED FAQS
  1. What's the difference between regular supply and demand and aggregate supply and ...

    Understand how businesses use supply and demand and aggregate supply and demand to forecast economic activity. Learn about ... Read Answer >>
  2. How Does the Law of Supply and Demand Affect Prices?

    Learn how the law of supply and demand affects prices, as when one outweighs the other, prices can rise or fall in response. Read Answer >>
  3. How does the law of supply and demand affect the housing market?

    Learn about the law of supply and demand, the relationship between supply and demand, and how it affects the housing market. Read Answer >>
  4. How does price elasticity affect supply?

    Read more about the price elasticity of supply, the law of supply and why a price change would alter the distribution of ... Read Answer >>
  5. What are some examples of inelastic goods and services that are not affected by the ...

    Find out how the laws of supply and demand function for goods and services considered highly inelastic, including goods not ... Read Answer >>
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center