Let us explore the Crucial Connection Between Logistics and Procurement

In the world of business, the seamless flow of goods and services from suppliers to customers is a critical aspect of success. This intricate process involves both logistics and procurement, which are closely interlinked functions that drive supply chain efficiency. In this blog post, we will explore the definitions of logistics and procurement, their connection, and the perspectives of internal and external logistics. Additionally, we will discuss key concepts and theories within the logistics field to shed light on their importance in managing supply chains effectively.

Defining Logistics

Logistics is the management of the flow of resources, including raw materials, finished products, and information, from their origin to their destination. It encompasses a series of activities, such as transportation, warehousing, inventory management, order fulfillment, and distribution. The primary goal of logistics is to ensure that the right quantity of goods is in the right place, at the right time, and at the right cost.

Defining Procurement

Procurement, on the other hand, is the process of acquiring goods, services, or works from external sources. It involves activities like sourcing suppliers, negotiating contracts, managing vendor relationships, and ensuring timely delivery of goods and services. Procurement strives to obtain the best value for money, balancing quality, cost, and delivery timelines to meet the organization’s needs.

The Connection Between Logistics and Procurement

The connection between logistics and procurement is inseparable, as one directly influences the other. The procurement process lays the foundation for the logistics function by determining which suppliers to engage, the terms of contracts, and the expected delivery schedules. Here’s how logistics and procurement are intertwined:

• Supplier Selection: Procurement professionals assess and select suppliers based on their ability to meet quality standards, delivery deadlines, and pricing requirements. This decision impacts the logistics process as it determines the origin of goods and their transportation routes.
• Contract Negotiation: Procurement specialists negotiate contracts with suppliers to establish terms, such as lead times, delivery schedules, and penalties for late shipments. These contractual terms significantly impact the logistics team’s planning and execution efforts.
• Inventory Management: Efficient logistics and timely delivery of goods are crucial to maintaining optimal inventory levels. Procurement decisions directly affect inventory holding costs and availability, which further influence logistics operations.

Perspectives of Internal and External Logistics

Internal Logistics:

Internal logistics refers to the movement and management of goods and materials within an organization’s own facilities or supply chain network. It encompasses processes like warehousing, order picking, packing, and transportation between different company locations. Efficient internal logistics ensure smooth operations, reduced lead times, and minimal inventory waste.

External Logistics:

External logistics deals with the transportation, distribution, and delivery of goods from suppliers to customers. It involves coordinating transportation modes, managing carriers, optimizing routes, and ensuring on-time deliveries. Effective external logistics enhance customer satisfaction, reduce delivery costs, and create a competitive advantage.

Key Concepts and Theories in Logistics

Just-In-Time (JIT): JIT is a strategy that focuses on producing or delivering goods just when they are needed. It aims to reduce inventory costs, minimize waste, and enhance supply chain responsiveness.

Total Cost of Ownership (TCO): TCO considers not only the upfront purchasing price but also all costs associated with owning and using a product or service. It helps procurement teams make informed decisions considering the entire lifecycle costs.

Bullwhip Effect: The bullwhip effect describes the amplification of demand fluctuations as they move upstream in the supply chain. Understanding this phenomenon helps companies reduce inefficiencies and better plan their logistics and procurement activities.

Conclusion

Logistics and procurement play complementary roles in creating an efficient and effective supply chain. From sourcing suppliers to delivering goods to end customers, both functions are critical to the success of any business. By understanding the connection between logistics and procurement, and integrating key concepts and theories, organizations can optimize their supply chain processes and gain a competitive edge in today’s dynamic business environment.

LHTS 10 week Basic Procurement training

If you’re looking to advance your procurement career and gain the knowledge and skills you need to succeed, the LHTS 10 week Basic Procurement Certificate is the perfect choice. This comprehensive program is designed to give you a solid foundation in the fundamentals of procurement, including operative-, tactical, and management processes.

The LHTS 10 week procurement basic Procurement Certificate is a fully online program that can be completed at your own pace. With a combination of online courses, written exams, and verbal exams, you’ll gain a deep understanding of the procurement process and develop the skills you need to succeed in this dynamic and challenging field.

What sets the LHTS 10 week procurement basic Procurement Certificate apart from other procurement programs is its focus on real-world skills and practical knowledge. You’ll learn from experienced procurement professionals who have worked in a variety of industries, giving you a broad perspective on procurement best practices and strategies.

To the program

References:

Bowersox, D. J., Closs, D. J., & Cooper, M. B. (2019). Supply chain logistics management. McGraw-Hill Education.

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2021). Purchasing and supply chain management. Cengage Learning.

Christopher, M. (2016). Logistics & supply chain management. Pearson UK.

Note: Illustration was created by Chat GPT.

Utbildning inköp can provide information about LHTS’ courses in Swedish