Supply Management: Definition, How It Works, and Example (2024)

What Is Supply Management?

The term supply management refers to the act of identifying, acquiring, and managing 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.

Understanding Supply Management

Most people consider supply chain management as the way corporations buy raw materials and finished goods. But supply management is more than simply buying products 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, along with budgeting, employees, and other key information to keep the business running smoothly.

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.

Oversight and management of suppliers and their contributions to a company's operations, for example, should be of paramount importance. Supply management personnel within a company or institution are generally responsible for the following:

• Identifying, sourcing, negotiating, 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

Special Considerations

Supply management divisions within large corporations can be very extensive, complete with huge budgets and hundreds of workers. Their success is usually measured by how much money they can 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).

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 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.

Supply Management vs. Supply Chain Management

The terms supply management and supply chain management are sometimes used interchangeably. But there is a difference. Supply chain management actually refers to the management of how goods and services flow through the production process—from raw material to finished goods that end up in the hands of consumers. This includes shipping, production, and distribution of products, goods, and services.

Supply chain management requires suppliers and managers to be as efficient as possible. This means they must make sure activities are streamlined so there are no shortages, costs are kept down, and businesses can remain competitive in the market.