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. I like to think of procurement and logistics as the Yin and Yang of supply chain management. Both are essential elements that make up a whole. But just as Yin is similar, yet different to Yang, procurement is different from logistics.
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.
When done right, 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. I see logistics as 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.
Supply chain finance management is also an important part of logistics (see: 3 Things Every Supply Chain Finance Manager Should Know), that is often overlooked and misunderstood, but that’s the subject for another day.
You can’t have one without the other.
The most significant difference is that while the scope of a procurement manager’s role is confined to the first half of the supply chain – from source to consumption – the logistics manager has more of a role involving everything after the purchase.
When people ask me which is more important, my response is “which came first, the chicken or the egg”. Both are equally important, because you just can’t have one without the other.
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.