Procurement and supplier management: the key differences explained

procurement and supplier management

Last modified on February 8th, 2024

A fraudster stole $1M from the City of Saskatoon, Canada, by impersonating the CFO of one of their suppliers. Besides the direct financial loss, it jeopardized the City’s procurement and supplier management, resulting in more indirect costs. Knowing the difference between both and securing them means you won’t make the same mistake! Keep reading to learn how to optimize and secure them.

Trustpair helps secure your supplier relationships and data thanks to ongoing account validation, ensuring the entire payment chain happens without fraud.

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What is procurement?

Procurement is the process of supplying external resources (goods and services) needed for your organization to carry out its activities effectively and efficiently. It means finding the best suppliers you need, with the right specifications, quality, and at the best price.

Procurement and supply chain examples include:

  • Supplying physical products, like raw materials, but also goods you need for conducting your business, like office chairs or the ink in your printers.
  • Buying services, like consulting, done-for-you work, or cleaning services.

Although it’s an ongoing activity, the procurement process can generally be split into various steps:

  1. Identifying your needs for current and future supply chain operations.
  2. Researching potential suppliers based on quality, prices, and reputation — identifying their ultimate beneficial owner.
  3. Negotiating with suppliers: working out the payment terms, and delivery times, and drafting out supplier contracts.
  4. Issuing a Purchase Order (PO), the official document detailing what’s being bought.
  5. Receiving and inspecting delivery, to ensure they meet your explicit requirements
  6. Processing invoices and sending payments which is done by the Procurement team (or accounting/finance team) according to the terms laid out in your contract.

In brief, procurement management (or supply chain management) refers to the obvious and direct process of getting the products and services needed for your company to keep producing and growing. It goes hand in hand with supplier management, which we’ll see next.

Learn more about the key risks affecting your Procure-to-pay process in this article.

 

What is supplier management?

While procurement refers to the actual process of acquiring quality products and services, supplier management focuses on the relationship with your suppliers (or vendors). It’s similar to Human Resources but for your external partners.

Vendor management is also used as a synonym for supplier management. Both terms refer to the global approach to overseeing and improving your supplier relationship.

It goes beyond managing the invoices, purchase orders, and other day-to-day activities. Supplier management encompasses the relational aspect of optimizing your sourcing because we know business is first and foremost about people.

Vendor management includes:

  • Carrying out a risk assessment of all your suppliers throughout your relationship,
  • Fostering your partnership, ensuring both parties are satisfied
  • Staying compliant with your local laws and regulations,
  • Managing your contracts to reflect the evolution of your partnership,
  • Strategizing long-term relationships to plan for your future growth,
    Assessing your supplier’s strengths and weaknesses.

In other words, vendor management targets all the necessary activities to support the actual procurement. Procurement focuses on the transactional value, and vendor management on the relational value.

Managing your vendors effectively is a soft skill that managers involved with the procurement supply chain need to master. It’s a key activity to ensure strategic alignment throughout your supplier lifecycle management. By fostering your supplier relationship, you also foster your growth.

Supplier management best practices include:

  • Centralizing your vendor data management in one software, maybe implementing a Supplier Management System.
  • Using Key Performance Indicators (KPIs) to measure your overall and individual supplier performance.
  • Streamlining your procurement and payment process so everything runs smoothly and on time.
  • Communicating clearly to ensure effective collaboration between both parties.
  • Continuously evaluating your suppliers’ risk to stay compliant and protected against third-party fraud.

 

How do procurement and supplier management work together?

An optimized procurement process benefits supplier management — and vice-versa:

  • Procurement is transactional and focuses on day-to-day sourcing.
  • Supplier management is relationship-based and focuses on long-term partnerships (that’s why it’s also referred to as supplier relationship management)

They’re similar activities but with different focuses. Effective supplier management and procurement are keys to the long-term success of your organization.

Investing in your supplier relationship management means you’ll understand your vendors’ processes and procurement capabilities better. In turn, supplier management helps you foster your growth by aligning your strategic goals with one another.

If tomorrow you have a new contract that requires you to multiply your production output by 100, you’ll need to ensure your suppliers can follow you — or find new ones who can.

The benefits of a good procurement and supplier management strategy include:

  • Increased cost savings and quality,
  • Optimized control over your entire supply chain,
  • Improved decision-making based on performance analytics,
  • Streamlined operational processes,
  • Better compliance and risk management,
  • More secure procure-to-pay processes.

The importance of supplier management and procurement speaks volumes: according to Deloitte, 79% of leaders in supply chains reported significantly higher revenue growth than their peers.

In today’s unstable economy, this level of performance gives you a competitive advantage. But for this, you need to ensure that your procurement and supplier management processes aren’t only optimized for productivity, but also secure against the risk of fraud.

 

How to secure your procurement and supplier management processes?

Procurement and supplier management roles and responsibilities also include securing your payment chain. It’s important to make sure that your payments are sent:

  • On time, without mistakes.
  • To the right recipient — not a scammer, like in our previous example.

Vendor fraud and invoice fraud happen more often than you think: in 2023, 96% of US companies have been targeted by at least one fraud attempt. Using fraud detection and prevention software as part of your supplier management means you’ll always send the money to the right account. We completely eradicate the risk of third-party fraud.

Trustpair is an anti-fraud software that protects you against the risk of third-party fraud, such as:

  • Vendor fraud,
  • Invoice fraud,
  • Wire transfer scams.

Criminals can fairly easily add their payment information to your network through cyber-fraud or social engineering attacks, which often go undetected for months on end. By the time you notice something is wrong, the money is long gone.

The good news is that you can protect yourself from that ever happening by using Trustpair.

Our fraud detection and prevention software runs automatic and continuous checks of your vendors’ credentials. We check your suppliers’ data in real-time against international databases to ensure:

  1. Their bank account numbers are correct,
  2. The name on the account is the right one,
  3. Both sets of information match.

Three-way matching your suppliers’ data means you always know you are paying the right recipient. It helps streamline your procurement and payment process and ensures good supplier management.

With Trustpair, your vendors are paid on time, without any errors, and without fraud.

To learn more about supplier management, download our vendor onboarding guide!

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Key Takeaways:

Procurement is the process of sourcing the goods and services your organization needs to operate. Supplier management focuses on the relationship itself with your vendors, and the supporting activities needed. Both need to be streamlined and secured to ensure your long-term growth. Trustpair helps you achieve this and eradicates the risk of fraud.

FAQ

Procurement is a transactional process: it’s about getting the goods and services organizations need to keep producing and growing. Supply management has a more relational approach: it’s what’s needed to ensure procurement happens smoothly and encompasses risk and contract management, as well as good communication with suppliers.

Trustpair helps secure your procurement process from end to end. We audit your suppliers’ credentials in real-time, so you always know who you’re paying. Using our anti-fraud software means you won’t pay a scammer thinking you’re paying a vendor, which would deteriorate your supplier management procurement and create supply chain disruptions.

Manage the risks related to corporate treasury.

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