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CHAPTER 1
PRINCIPLES OF SUPPLY CHAIN AND PROCUREMENT MANAGEMENT
SYNOPSIS
Adopting supply chain management as a critical element of corporate strategy
has emerged as a clear trend in the past decade. This is because organisations
have begun to recognise the benefits of developing collaborative relationships
with supply chain members and leveraging their core competencies to compete
as part of a larger supply chain. In addition, supply chain practitioners can build
a sustainable competitive edge if they completely understand their customers’
needs. By understanding what customers want, where and when they want it,
how they receive it and what they are willing to pay for the products and services,
companies are able to effectively procure the necessary resources to meet the
customers’ needs or expectations.
This chapter presents the principle drivers of supply chain management and
procurement. It begins with a discussion of the relationship between the supply
chain and procurement, and then goes on to examine some of the supply chain
principles that academics have put forward. This is followed by a discussion of
procurement principles. The chapter concludes with a section on the importance
of the management of supply chain and procurement. By the end of this chapter,
it should be clear how procurement and supply chain principles support supply
chain management in practice.
1.1 INTRODUCTION
The concept of supply chain management has received increasing attention from
academics, consultants and business managers [1]. Businesses can no longer
ignore the importance of supply chain management for building a sustainable
competitive edge and improved business performance [2, 3].
A supply chain encompasses the various participants who perform a sequence
of activities by moving physical goods or services from a point of origin to
a point of consumption [4, 5]. The goal is to maximise customer value and
achieve a sustainable competitive advantage [6]. It encompasses the planning
and management of all activities involved in product development, sourcing,
procurement, production and all logistics management activities, as well as
the information systems needed to co-ordinate these activities [7]. Supply
chain management also includes co-ordination and collaboration with channel
partners, which can be suppliers, intermediaries, third-party service providers
and customers [8].
The concept of supply chain management is based on two core ideas. The first is
that practically every product that reaches an end user represents the cumulative
effort of multiple organisations. These organisations are referred to collectively
as the supply chain. Put simply, a supply chain involves participants from the
supply point of origin (upstream) to the ultimate consumer (downstream). These
are the source suppliers, manufacturers, distributors, retailers and customers.