Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Logistics in Procurement — Everything A Procurement Professional Should Know
Key takeaways
- Logistics in procurement is the systematic coordination and management of goods, information, and services from suppliers to their destinations.
- Logistics and procurement are different in functions but are connected.
- There is a tedious step-by-step process in procurement logistics that is important for you to follow.
Logistics in procurement plays a vital role in the success of the supply chain. Supply chain, logistics, and procurement are different aspects that represent different functions in acquiring and distributing goods and services. However, many people consider procurement and logistics to be the same. But are they?
This article will determine the role of logistics in procurement. We will discuss how it differs from procurement and supply chain, and why these are essential for manufacturing companies.
After reading this article, you will know how logistics, procurement, and supply chain are interconnected with each other. The critical importance of logistics and procurement in your supply chain will also be discussed in the following sections.
But before starting to read the article, I have created a free-to-download editable sourcing calendar template. It’s a PowerPoint file, together with an Excel file, that can help you streamline your logistic process from start to finish. I even created a video where I’ll explain how you can use this template.
Logistics: What is It?
Before tackling the role of procurement in logistics, we must first define what it is. Of course, this needs to be done for step-by-step guidance, and for you to thoroughly understand its role in procurement, which will be discussed later on.
Going back, logistics refers to the process of planning efficient storage and transportation of goods from their origin to the point of destination.
But to keep it simple, logistics refers to the overall process of how goods are obtained, stored, and transported to their final destination. It optimizes the movement and storage of goods to ensure that it is delivered to the right place, at the right time, and in the right condition.
Ultimately, we must take note that logistics is just an element of the entirety of the supply chain. It is an aspect that is connected to both the supply chain and procurement.
But how is it connected to both the supply chain and procurement? Keep reading!
Logistics in Procurement
Here, we will discuss logistics in procurement and their connection with each other.
Logistics in procurement refers to the systematic coordination and management of the flow of goods, information, and services from suppliers to consumers or other destinations. It plays a crucial role in optimizing the supply chain and ensuring the timely and cost-effective delivery of products.
The key elements of logistics in procurement include transportation, warehousing, inventory management, and distribution. Of course, having a warehouse to store supplies, as well as transportation to distribute said supplies is important. Inventory management is also needed to maintain product quality. This is why transportation, warehousing, inventory management, and distribution are all key elements of logistics and procurement.
With efficient logistics at hand, the organization enhances supply chain performance, reduces lead times, minimizes costs, and contributes to the overall effectiveness of the procurement process. Thus, integrating technology and strategic partnerships with logistics providers is now seen as essential for streamlining processes and improving the agility of procurement operations.
As an experienced procurement manager at Ahold Delhaize and Royal Friesland Campina, I have had extensive experience in making logistical arrangements in contracts. Logistics is a part of many standard contracts in FMCG. From a retailer’s perspective, you want to have as many things as possible stipulated. This mainly concerns service-level agreements where you want to be able to penalize suppliers for failing to deliver goods. From a supplier’s perspective, of course, you want to make as few agreements about this as possible
However, it is important to at least discuss objectives with each other. What are the key KPIs for both the supplier and the retailer and how can you collaborate to improve these KPIs?
Let’s first go back to some definitions. What are the differences between procurement, logistics, and supply chain?
Logistics, Procurement, and Supply Chain: The Differences
Logistics, supply chain, and procurement are all interconnected aspects of the process of acquiring and distributing goods or services, but they represent different stages and functions within that process. Let’s find out these differences.
In summary, procurement focuses on sourcing and acquiring goods or services, logistics focuses on the physical movement and storage of those goods, and supply chain management encompasses the broader coordination and optimization of all activities involved in delivering products or services to customers.
These three are interconnected in a way that all processes significantly contribute to the overall acquisition and delivery of goods, from sourcing and acquiring goods to delivering the goods, and the coordination of all the activities.
Processes in Procurement Logistics
Here are the processes in procurement logistics that we’ve listed down for you.
1. Product policy
Product policy is the part of procurement logistics 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 focus 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 access a faster transit lane for imports, making 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 part of procurement logistics and 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 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 selects the best way to acquire materials at the lowest prices without compromising the quality.
The purchasing strategy keeps the competition alive and keeps prices from increasing.
Procurement Expert’s Advice on Logistics in Procurement
For this article, we asked a seasoned procurement professional to share his insights about logistics in procurement.
Sjoerd Goedhart
Owner, Goedhart Interim Management & Consultancy
LinkedIn Profile: https://www.linkedin.com/in/sjoerdgoedhart/
1. Can you share a personal example about logistics in procurement? What can readers learn from this?
“As a buyer of high-rotating food products for a retailer, it’s important to negotiate the logistics terms in the total proposal of procurement conditions and with RFQs to have this included.
This is to be sure that a supplier is willing to meet the delivery conditions and frequency (multiple DCs and frequency per week) to avoid out-of-stock and minimize the risk of this.
This also prevents additional costs from having to be incurred by one of the parties because the logistics conditions have not been coordinated. Ultimately, this affects the margin and any future willingness to collaborate or expand the collaboration. Therefore puts pressure on the relationship.”
Follow-up Question: How do you typically approach negotiations with suppliers regarding logistics terms?
“In negotiations with suppliers regarding logistics terms, it’s essential to outline key performance indicators (KPIs) and the associated consequences for not meeting them. This sets clear expectations from the outset.
Larger companies often have stringent logistics terms and service level agreements, which suppliers must accept to do business. Introducing these terms early in negotiations allows both parties to assess compatibility efficiently.
Even for smaller companies, consolidating logistics terms across suppliers reduces hidden costs and streamlines operations. This upfront clarity benefits all parties involved and can save significant resources in the long run.“
2. What should readers know about the logistics in procurement?
“Procurement logistics is the sourcing of materials needed to manufacture products. In other words, this part of the supply chain focuses on purchasing raw materials, replacement parts, auxiliary supplies, operating supplies, and other items needed for the manufacturing process.
Logistics plays a crucial role in an optimal procurement and supply chain process. Logistics and procurement are closely linked and, if optimally coordinated, can yield significant cost benefits.”
Follow-up Question: In what ways do logistics and procurement collaborate to optimize the supply chain process?
“Logistics and procurement collaborate through shared KPIs. Procurement should engage with logistics early in the process for optimal supply chain optimization.”
3. What is the biggest misconception about logistics in procurement? What do most people get wrong about this topic?
“One of them is that logistics is just about shipping and transportation. This is not correct. Effective logistics management involves coordinating all of the elements to ensure that goods are delivered to the right place, at the right time, and at the right cost“
4. How does logistics play a critical role in the success of procurement operations?
“An optimal logistics flow ensures an efficient production process because goods are available on time, limits inventories and shortens the storage lead time. All this ensures an efficient supply chain and delivers significant cost benefits for companies.“
5. What are the emerging trends in logistics that are impacting procurement strategies?
“There are various key trends that are transforming the industry:
- Digitalization and automation are streamlining operations
- Big data and predictive analytics are optimizing supply chain performance
- Agility in the supply chain
- Increasing consumption
- Rising e-commerce and ongoing reconfiguration of the supply chain to move goods more quickly and efficiently
- Sustainability and environmental responsibility“
6. Is logistics solely concerned with delivering goods, or does it involve additional aspects?
“No, it concerned much more than just the delivery of goods. It is the total process of getting the goods, transport, storage, and the most optimal mode of transport until timely delivery to the user.”
7. What skills should a procurement professional possess to be effective in logistics?
“A procurement professional in logistics should possess strong analytical and problem-solving skills for data analysis and decision-making. Additionally, excellent communication and negotiation skills are essential.“
Conclusion
Logistics in procurement provides a systematic management of the flow of goods and services from suppliers while ensuring the timely and cost-effective delivery of products. Thus, it maintains a smooth flow of purchasing, delivery, and everything in between.
While procurement is solely in charge of acquiring goods, logistics functions stretch further. So, when combined, logistics in procurement also oversees the proper delivery of goods and services to consumers or any other destination.
Moreover, there is a tedious process to procurement logistics. It has a step-by-step process that is crucial for you to follow to reach an optimal flow of your procurement process, and ultimately your supply chain.
Frequentlyasked questions
What is logistics in procurement?
Logistics in procurement is responsible in managing the purchasing of goods and services from the suppliers and their delivery to consumers.
What is logistics?
Logistics is a component of the supply chain that is concerned with the storage and movement of goods.
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.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
