Many different terms, such as less-than-truckload (LTL), procurement and transportation management, describe supply chain management processes. In some cases, these conditions may be applied to all supply chain processes. However, each term covers a different portion of the supply. For example, transportation management often focuses on the journey of products after manufacturing. Although procurement logistics might sound like it involves the purchasing of manufactured products, it is much more involved.
The Definition of Procurement Logistics.
The simplest way to think of procurement logistics is the procurement of materials needed to manufacture products. According to DHL, procurement logistics includes obtaining the following necessities:
- Raw materials.
- Auxiliary supplies.
- Operating supplies.
- Replacement parts.
- Purchased parts and similar items.
The materials are the building blocks of an actual product, but the materials do not magically appear. In other words, an entire section of the supply chain must be devoted to purchasing, shipping, organizing and storing these various components at the procurement warehouse. If the flow of procurement logistics becomes inhibited, it could undermine production in manufacturing centers and subsequent storage warehousing, creating a strain on the distributor and customers.
Where Do Logistics Providers Come Into Play With Procurement Logistics?
Every cost associated with manufacturing a product increases its value. If a manufacturer must play 10-percent higher costs of raw materials, the resulting spike in charges may cause an increase to the end-user. Also, the type of raw materials purchased can involve lengthy supply chains, such as an international transit of raw minerals from other sites to the manufacturing center. But, what specific logistics processes would be included in this scenario?
The answer is closely linked with how a company markets and contacts suppliers and vendors, reports Srikanth Pinagali. Ultimately, these raw materials must be obtained from suppliers and transported to the factory. Some materials may require additional inspections by the U.S. Customs and Border Protection (CBP) or even the Department of Homeland Security. Consequently, the amount of paperwork and organization needed to operate a raw-material supply chain can be substantial, especially if the demand by the purchasing manufacturer is high.
These processes can be broken down into specific categories of procurement logistics, which include the following:
- Product Policy – This part of the procurement logistics operation revolves around the “Big Picture” of the product being built. It may include packaging materials, manufacturing details and warehousing considerations.
- Terms and Conditions – This part of procurement logistics focuses on the “fine print.” Does a provider of procurement logistics offer auditing services, ability to access additional resources and other specific details? Some providers may even have access to faster transit lanes for imports, making the whole supply chain more productive. Ultimately, the terms and conditions are laid out during contract negotiation.
- Communications Strategy – The communications strategy is how a company decides to make a product available. Will it include multiple factories, regional distribution centers, and lengthy marketing advertisements? In other words, each part of the communications strategy will require materials from the procurement to make a product more readily available to all customers and business-to-business partners. This part of procurement logistics, explains DHL, can be among the most intense parts of the procurement logistics supply chain. Furthermore, communication can mean the difference between the success and failure of a new or upcoming product.
- Purchasing Strategy – The purchasing strategy is how a company decides to go about obtaining the materials needed for manufacturing. In other words, an optimized purchasing strategy can collect materials from a variety of suppliers, analyze current supplier market trends, and select the best means of obtaining materials at the lowest prices, without sacrificing quality. This also drives competitive advantage among suppliers, helping to keep prices from skyrocketing. This section of the procurement logistics supply chain also includes the actual work with 3PLs, if applicable.
What Is Procurement Management?
Procurement management is all of the processes that go into managing a company’s incoming material needs for manufacturing. This may include obtaining bids from third-party logistics (3PLs) providers, the creation and negotiation of contracts with such providers, the hiring of employees and drivers, and marketing and business professionals.
Each job plays a critical role in ensuring the costs associated with manufacturing do not exceed the company’s expectations. Often, a whole procurement management team may be hired for large organizations or corporations. But, small-business owners may lack the resources to hire all of these professional at the onset of manufacturing. As a result, working with a 3PL directly may be the best way for a new or growing organization to gain access to all of the resources necessary to build a successful enterprise.
What Does It All Mean?
Procurement logistics precede the typical logistics supply chain. If the procurement supply chain does not exist, all subsequent parts of the supply chain cannot exist. According to Dimension Data, more accurate demand planning, globalization of suppliers, increased competition, shortened product life cycles, collaboration and detailed procurement management tools are required to keep the global supply chain in operation.
In meeting this need, it is in the best interest of many organizations to work with companies that have a global reach in the supply chain, such as 3PLs, to ensure their ability to compete with the organization in the global economy continues. Ultimately, a 3PL can be the most important source of procurement logistics available, leveling the playing field between big and small companies.