Unit 8.2
The Procurement Process and Supply Chains
IT 204: E-Commerce
Learning Objectives
By the end of this chapter, you will be able to:
- ✅ Define the procurement process and identify its four core steps.
- ✅ Explain the concept of a supply chain and its key components.
- ✅ Differentiate between direct and indirect supply chains.
- ✅ Analyze the unique challenges and opportunities for supply chain management in Nepal.
What is Procurement?
Definition: The process of acquiring goods or services from an external source.
Think of it as the formal, strategic process a business uses to get everything it needs to operate.
🎯 Effective procurement directly impacts a company's bottom line and operational efficiency.
The 4 Core Steps of Procurement
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1. Need Recognition
The process begins when a department or individual recognizes a need for a product or service.
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2. Sourcing
Identifying and vetting potential suppliers who can meet the recognized need.
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3. Purchasing
Negotiating terms and formally acquiring the goods/services, often via a purchase order or contract.
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4. Payment
Processing the invoice and completing the financial transaction with the supplier.
Step 2 Deep Dive: Sourcing Suppliers
🔍 Common Sourcing Methods
- Online Research: Using B2B portals, search engines, and supplier directories.
- Trade Shows: Industry events to meet suppliers face-to-face.
- Referrals: Leveraging professional networks for recommendations.
- Request for Proposal (RFP): A formal process to solicit bids from multiple suppliers.
E-Commerce Sourcing
In e-commerce, online sourcing is dominant. Platforms like Alibaba, ThomasNet, and Global Sources have revolutionized how businesses find manufacturers and wholesalers globally.
From Procurement to Supply Chain
Definition: A supply chain is the entire network of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.
Supplier ➡️ Manufacturer ➡️ Distributor ➡️ Retailer ➡️ Customer
Procurement is a critical activity within the larger supply chain.
Types of Supply Chains
⚡ Direct Supply Chain
The product moves directly from the manufacturer to the end customer, with no intermediaries.
Example: A customer ordering a custom-built computer directly from Dell's website.
🌐 Indirect Supply Chain
Involves one or more intermediaries like wholesalers, distributors, and retailers.
Example: Buying a bottle of Coca-Cola from your local grocery store (Kiranapasal).
Case Study: Supply Chains in Nepal
The procurement and supply chain landscape in Nepal presents a unique mix of hurdles and potential.
🚧 Key Challenges
- Poor Infrastructure: Difficult terrain and developing road networks slow down transport.
- Skills Gap: Lack of trained personnel in modern logistics and SCM.
- Regulatory Framework: Developing legal structures for complex supply chains.
- High Transport Costs: Fuel prices and challenging geography increase operational costs.
💡 Key Opportunities
- Affordable Technology: Cloud ERPs and mobile tech are becoming more accessible.
- Government Support: Increased focus on improving infrastructure and trade policies.
- Growing Investment: More businesses are recognizing the value of SCM and investing in it.
- E-commerce Growth: Platforms like Daraz and Sastodeal are driving innovation in logistics.
E-Commerce as a Solution in Nepal
Discussion Point 🧠
How can e-commerce platforms and digital tools specifically help overcome Nepal's supply chain challenges?
- Overcoming Infrastructure: Centralized warehousing and optimized last-mile delivery routes managed by e-commerce players.
- Bridging the Skills Gap: User-friendly seller portals and inventory management software reduce the need for specialized training.
- Reducing Costs: Digital procurement and automated systems can lower administrative overhead and improve efficiency.
Technology doesn't just enable e-commerce; it actively helps solve pre-existing logistical problems.
📊 Key Takeaways
- The procurement process is a structured, four-step cycle: Need Recognition, Sourcing, Purchasing, and Payment.
- A supply chain is the entire end-to-end network that brings a product to the customer. Procurement is one part of it.
- The context of a region like Nepal highlights how infrastructure, policy, and technology create unique supply chain challenges and opportunities.
- E-commerce is a powerful catalyst for modernizing and improving supply chain efficiency, especially in developing economies.