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.

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