Logistics in Procurement — Everything a Procurement Professional Should Know
Logistics in procurement plays a vital role in the success of the supply chain. However, many people consider procurement and logistics the same.
This article will determine the role of logistics in procurement. We will discuss how it differs from procurement and why it is essential for manufacturing companies
After reading this article, you will know how logistics and procurement are related to each other. Additionally, you will learn the critical importance of logistics and procurement in your supply chain.
Before we tackle the role of procurement in logistics, we must first define what is logistics. Of course, this needs to be done for step-by-step guidance.
Going back, logistics is the process of planning efficient storage and transportation of goods from their origin to the point of destination.
To keep it simple, logistics refers to the overall process of how goods are obtained, stored, and transported to their final destination.
Additionally, we must take note that logistics is just an element of the entirety of the supply chain.
Procurement in Logistics
Now that we know what is logistics, let us now go on identifying the role of procurement in logistics.
Procurement in logistics is defined as the process responsible for supplying goods to a production plant, warehouse, or logistics center. The process ensures that the daily operation or activity of the business is carried out.
The concept of procurement in logistics is highly associated with the supply and purchasing of goods or raw materials.
Procurement is also related to the reorder point when it is used in warehousing. When the supplies of a warehouse are depleted, a replenishment order shall be done to prevent stockout.
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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 procurement logistics.
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.
Frequently asked questions
1. What is procurement in logistics?
Procurement in logistics is the process of supplying goods to a warehouse.
2. What is logistics?
Logistics is a component of the supply chain that is concerned with the storage and movement of goods.
3. What is the difference between procurement and logistics?
To put this simply, procurement is the buying of goods or services. On the other hand, logistics is concerned primarily with the storage and movement of goods.
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