Companies are often confronted with a competitive disagreement between
departments and management over their relative importance and contributions
that can lead to inefficiency. That’s the case with procurement and logistics
as they relate to supply chain management. They are interrelated, certainly,
but each plays a different and important role for successful companies.
Simply put, procurement is the buying or purchasing of goods or
services. Logistics is the movement, storage, and operations around the
utilization of purchased goods and services for whatever business the company
is in.
Procurement is a strategically-based methodology and process by which a company
evaluates and sources items that are integral to their business model,
standardizes purchasing processes, and monitors and manages all elements of
that process. Procurement is an important financial function for a
company that, according to Forrester, can account for up to 70% of a company’s
cost of doing business.
Procurement includes all aspects of purchasing – developing standards of
quality, financing purchases, negotiating price, buying goods, and ensuring
adequate inventory is available.
Logistics, on the other hand, is the process by which those purchases are
physically transported and delivered to the right place at the right time. logistics is a coordinating and complementary
role that involves operations and sometimes marketing, finance, and management.
Logistics management is that part of supply chain management that plans,
implements, and controls the flow and storage of goods, services and related
information between the point of origin and the point of consumption in order
to meet customers’ requirements.
In today’s global economy, understanding and responding to the
importance of both procurement and logistics is more important than ever.
Today’s supply chain management is about understanding and
manipulating all variables to deliver goods and services on-time and within
budget. With increasing globalisation of manufacturing and sourcing impacting
both large and small companies, careful demand planning therefore plays a crucial
role in all aspects of procurement and logistics. The speed at which business
is conducted shows no sign of slowing, putting increasing pressure on supply
chains to function more efficiently. Success in the area of procurement and
logistics will hinge on a company’s understanding of the critical importance of
both functions.
And their ability to forge long-term partnerships between these
two equally important elements of the supply chain.