What is the difference between purchasing, procurement and material management?
The Purchasing, Procurement, and Material Management Functions are closely related, but we will discuss the differentiation.
Procurement is the understanding and translation of customer needs and requirements for the selection of capable suppliers, to realize the cost-effective acquisition, receipt, and payment of vital inputs and raw materials. Factors impacting the Total Cost of Ownership such as quality, efficiencies, delays, stock-outs, obsolescence and carrying cost are heavily emphasized in the procurement discipline.
Purchasing is a term often used in conjunction with procurement, but it is in fact a component of procurement. Purchasing, therefore, is the issue of a purchase order, receipt of goods and services to timely payment of all accrued invoices.
Materials Management is the management of the flow of materials to the production function from the suppliers, and eventually to the end user, in synchronization with the Procurement function. WIP (Work in Progress) is also part of the Materials Management Function. Quality Control and Materials Handling, and Inventory Management Processes also underpin this function.
The Inventory management component of Materials Management focuses on inventory as an asset or an instrument of value creation. Inventory is managed to maximize value, exposure, and/or profit while minimizing cost and spend.
This consists of:
Product smoothing and leveraging
Selective product placement
Velocity and turns calculation development
Inventory reduction and product rationalization
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