Procurement logistics involve the delivery, receipt, movement, and storage of purchased materials. It is essential for manufacturing and distribution companies to minimize costs and increase service. Procurement includes selecting suppliers and negotiating contracts, while strategies like just-in-time delivery and using logistics brokers can reduce transportation and storage costs. Procurement logistics aims to reduce costs and minimize production disruptions to avoid non-production periods.
Procurement logistics are the processes used in the delivery, receipt, movement and storage of purchased materials for a business or organization. In most manufacturing or distribution companies, procurement logistics forms the backbone of the business. The main concepts related to purchasing logistics are focused on minimizing costs and increasing service.
Procurement is the entire process used to select suppliers and negotiate contracts for the delivery of goods or services. Procurement logistics typically form an important part of contracting with material suppliers. Items included in this section of a purchase agreement include minimum and maximum order sizes, delivery times, delivery expectations, and delivery locations.
The cost of transportation and storage is included in the final price of all goods. However, companies that are negotiating high-value contracts can attempt to minimize these hidden costs through various strategies. For example, just-in-time delivery requires the supplier to store and ship the goods according to a set schedule. The contract guarantees a specific volume of materials in each order. If the customer decides to store the materials, the unit price can be negotiated lower, as these costs are not borne by the supplier.
Shipping raw or finished materials from all over the world is very expensive. Some companies use a specialized logistics company as a broker to manage the flow of materials and minimize costs. For example, a steel plant in China with a contract in Canada may ship the entire order to a storage space in the United States, managed by the broker. As the customer confirms the quantities, the broker releases the materials for shipment to Canada. Shipping costs to the manufacturer are lower, although there is an additional cost for broker services.
People who work in supply logistics typically are trained in both disciplines. Solid knowledge is required to create proposals, review contracts and determine all possible options. Contract negotiation skills are often developed in a procurement position but are not necessarily used in logistics.
Regardless of industry, the driving factor behind all procurement logistics initiatives is the desire to reduce costs and minimize production disruptions. Failure to deliver parts on time can easily lead to a complete halt to all work. The minor savings in storage costs are more than lost in the cost of wages and overheads during a non-production period. There is a level of risk in all decisions and procurement logistics is a method of minimizing known risks.
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