Logistics in Procurement — Everything a Procurement Professional Should Know

What is the Difference Between Procurement and Logistics?

Procurement and logistics are connected to each other which makes a lot of people use them interchangeably. However, procurement and logistics have their own role to play for companies to succeed. 

To keep it simple, procurement is the buying of goods or services. Procurement encompasses all the aspects of purchasing from developing standards to ensuring enough space is available in the inventory. 

On the other hand, logistics are involved with the operation, movement, and storage of goods. It is the method where the acquired goods are physically transported and delivered on time to the right place. 

We can see logistics as the part of the supply chain that manages the flow and storage of goods and services in the supply chain.

Defining Procurement Logistics

Now that we have defined and compared both procurement and logistics, it is time to know indirect procurement.. 

Procurement logistics is the process of purchasing raw materials needed to manufacture products. To put it simply, it is the part of the supply chain that focuses on purchasing the following materials needed to start the manufacturing process:

• Raw materials
• Replacement parts
• Auxiliary supplies
• Operating supplies

Procurement logistics does not just handle the acquisition of raw materials but also its storage and shipment to a warehouse. 

Many manufacturing companies have a procurement logistics team that manages the product policy, terms and conditions, communications strategy, and purchasing strategy. 

Processes in Procurement Logistics

1. Product policy 

Product policy is the part of procurement logistics that is concerned with defining the details of the product being built. This includes manufacturing details, warehousing considerations, and packaging materials. 

2. Terms and conditions

Terms and conditions are focused on the qualities of a provider that you will choose. This is where you can assess the provider of procurement logistics.

You can ask questions to yourself like does it offer auditing services or does it have access to additional resources? 

This will allow you to have access to a faster transit lane for imports which will make your supply chain productive. 

You must take note that the terms and conditions are laid out during the negotiation of the contract. 

3. Communications strategy 

Communication strategy is the part of procurement logistics how a company determines to make a product available. 

It is the strategy that will decide if it will include multiple factories, regional distribution centers, and lengthy marketing advertisements in making the product available. 

To keep it simple, it requires the materials from procurement to create a product that is readily available to all business-to-business partners and consumers. 

Communication strategy is critical to the success or failure of the new or upcoming products. 

4. Purchasing strategy

The purchasing strategy is the part of procurement logistics that decides how a company will obtain the materials needed for manufacturing. 

A good purchasing strategy entails collecting materials from various suppliers and analyzing the current trends in the market. 

It is also selecting the best way to acquire materials at the lowest prices without compromising the quality. 

Purchasing strategy keeps the competition alive that keeps prices from increasing.