Procurement logistics

From CEOpedia | Management online

Procurement logistics is responsible for delivering materials, raw materials, semi-finished products or goods from suppliers to the company's supply warehouse or directly to the processing locations. The main purpose of the procurement subsystem is to effectively and economically satisfy the material needs of the company.Procurement logistics is the complete procurement process that includes:

Among the basic sourcing tasks, it also distinguishes maintaining the availability of goods in the long-term, as well as searching for new suppliers whose offers meet the recipient's requirements to a greater extent. Such tasks are characteristic of marketing activities and used primarily primarily on the market, they also apply in the field of supply.

The main objective of procurement logistics it to obtain materials or services according to specification at the best possible cost within needs and constraints of the company. It is important to state that price is on the second place, after meeting the specification.

Functions procurement logistics

The basic tasks of supply logistics include:

  • delivery control
  • optimization of procurement costs
  • cooperation with suppliers
  • cooperation with other organizational units in the company
  • collection and storage of goods and materials
  • synchronization of the delivery process
  • satisfying material needs

Criteria for selecting suppliers

  • Price and discounts,
  • "Quality and Safety,
  • Delivery
  • Service
  • Social Responsibility
  • Convenience / Simplicity
  • Risk
  • Agility" [1]
  • Forms of sale,
  • Possibility of storage at the supplier,
  • The way of handling a complaint,
  • Distance from the supplier's production facility

Steps of a strategic procurement process

It requires input from all departments and functional areas for an organization. Organizations should set up a strategic procurement team. This team sets the overall direction for procurement, aligned with the business strategy. The team will then use the data from the strategic procurement process to develop and implement a strategic procurement plan. Here are the 7 steps that lead to a successful procurement process. Original article:

  • Step 1: Conduct an internal needs analysis
  • Step 2: Conduct an assessment of the supplier's market
  • Step 3: Collect supplier information
  • Step 4: Develop a sourcing/outsourcing strategy
  • Step 5: Implement the sourcing strategy
  • Step 6: Negotiate with suppliers and select the winning bid
  • Step 7: Implement a transition plan or contractual supply chain improvements[2].

Material flow phases

In the company's procurement logistics, the following phases can be distinguished in the flow of materials:

  • inflow - most often it involves transport, it includes in its scope delivery of materials to the enterprise that will be needed in production and all other goods necessary for efficient economic functioning
  • collection and storage - it covers the receipt of goods brought by the supplier and its storage in supply warehouses. In addition, this phase applies to all storage and handling activities related to the collection and storage of goods
  • organization of material flow - means activities related to the flow of materials from warehouses, in which they were stored in the production hall, and more precisely to the first production station in which these materials will be used.

Examples of Procurement logistics

  • Procurement planning: This is the process of defining the objectives, scope and timing of the procurement process. It involves understanding the company’s needs and finding the most effective way to meet them.
  • Supplier selection: Identifying and selecting suppliers that meet the company’s requirements is an essential part of procurement logistics. Different criteria must be considered when selecting the right supplier, such as the quality and price of goods.
  • Negotiation: Negotiating with suppliers is an important part of procurement logistics. Negotiations involve discussing delivery schedules, payment terms, and other conditions that may be necessary to secure a favorable deal.
  • Order processing: Once a supplier has been selected, the company must process the order. This involves creating an order form, confirming the order with the supplier, and then tracking the order until it is delivered.
  • Logistics planning: Logistics planning involves designing and implementing a system for efficient movement of goods from suppliers to the company’s manufacturing facilities. This includes route optimization, scheduling, and cost optimization.
  • Risk management: Risk management is an important part of procurement logistics. It involves identifying potential risks associated with the procurement process and taking steps to mitigate them. This includes assessing supplier performance and reliability, as well as ensuring that goods are delivered on time and in good condition.
  • Quality assurance: Quality assurance involves verifying that goods meet the company’s standards. This includes inspecting goods upon receipt, testing them for quality, and ensuring that they meet the company’s specifications.
  • Tracking: Tracking is an important part of procurement logistics. It involves monitoring the progress of the delivery, and ensuring that goods are delivered on time and in good condition.

Advantages of Procurement logistics

Procurement logistics offers a number of advantages that help companies optimize their supply chain operations. These advantages include:

  • Streamlined process: Procurement logistics simplifies and streamlines the procurement process, allowing companies to order, receive, and pay for goods more quickly and efficiently.
  • Cost savings: By consolidating and centralizing procurement, companies can save on costs by taking advantage of bulk discounts, and by reducing the number of suppliers used.
  • Improved accuracy: Automated processes and technologies help reduce errors and increase accuracy in the procurement process.
  • Increased visibility: Companies have access to real-time data, enabling them to monitor the entire procurement process and make informed decisions.
  • Risk reduction: Procurement logistics can help identify potential risks and take steps to mitigate them. This helps ensure the timely delivery of goods and services.
  • Improved customer service: By leveraging technology, companies can provide better customer service and ensure customer satisfaction.

Limitations of Procurement logistics

  • Limited resources: Procurement logistics is limited by the resources allocated to the company, such as budget and staff.
  • Time constraints: Time restrictions can be an issue when it comes to procurement logistics, as the process must be completed quickly and efficiently to ensure that materials are delivered on time.
  • Lack of visibility: Procurement logistics can lack visibility since it is often done without the use of technology. This lack of visibility can lead to delays and errors in delivery.
  • Communication barriers: Communication barriers can be an issue in procurement logistics, as communication between stakeholders such as suppliers and the company can be difficult if there is no established relationship.
  • Complexity: Procurement logistics can be complex due to the number of stakeholders involved and the need to manage a variety of processes.
  • Risk of fraud: Procurement logistics can be vulnerable to fraud and corruption, as there is often no way to verify the accuracy of the materials being procured.

Other approaches related to Procurement logistics

  • Sourcing: Sourcing involves identifying and selecting the best sources of materials and services from both internal and external suppliers. This includes evaluating potential suppliers and negotiating prices and terms.
  • Ordering: Ordering involves creating purchase orders and sending them to the selected suppliers. This process includes tracking the status of the order and ensuring that it is fulfilled according to the terms of the agreement.
  • Receiving: Receiving involves verifying the receipt of goods, inspecting them for quality and accuracy, and recording the receipt in the company’s inventory records.
  • Payment: Payment involves the process of issuing purchase orders, verifying invoices, and ensuring that payments are made to the suppliers according to the terms of the agreement.

In summary, Procurement Logistics is the process of sourcing, ordering, receiving, and paying for materials and services from suppliers in order to ensure that the company’s material needs are fulfilled in a cost-effective and timely manner.


Procurement logistics — recommended articles
Coordinative function of logistics — Supply logistics subsystem — Distribution logistics subsystem — Added value (logistics) — Logistics — Principles of Supply Chain Management — Production logistics subsystem — Contract logistics — Material stream

References

Footnotes

  1. ↑ Charles D.
  2. ↑ Blood-Rojas C.

Author: Natalia Borowiec

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