“You wouldn’t buy a house without a lawyer or surveyor, so why would you agree a multi-million pound transport contract without procurement advice?”
Procurement adds value through the development of effective specification documents, strategic negotiation, improved overall performance and financial management. In addition, the functions’ in-depth understanding of the key drivers of the macro organisation can lead to added value in areas such as use of working capital.
Logistics teams often lack a strong link with their counterparts in finance. Procurement, on the other hand, is not only familiar with the environment inhabited by finance, but can also add credibility to any application put forward by logistics. By helping to translate requests into detailed strategic plans which each function can understand, procurement can drive the acceptance of logistics propositions and help to retain savings achieved within departmental budgets.
Procurement can act as a mediator and help logistics teams maintain good relationships with external suppliers. By handling complex negotiations, procurement plays the “bad cop” role and ensures logistics avoids getting drawn in to awkward discussions. This division of labour allows both functions to take advantage of their respective skillsets and ensures working relationships with external suppliers are as smooth as possible.
When properly employed, the skills, processes and tools used by procurement undoubtedly add value to logistics operations. By intelligently allocating tasks to each function, a collaborative approach allows both procurement and logistics to focus on their key strengths for the benefit of the business as a whole.
Procurement does not add Value
“It’s what I call Procurement with a capital ‘P’ that can be damaging to logistics. This is when procurement departments enter a logistics environment, roll out a string of systems and processes and expect to make savings based on their experiences with ‘similar’ operations.”
In most cases Procurement does not fully understand the logistics function and believe they can make savings simply because it is a large spend area. It is acknowledged that procurement does add value to the buying of commodities where standard procurement tactics are involved, however, this does not qualify them to be directly involved in logistics operations.
Logistics professionals are more than capable of defining their requirements and negotiating with suppliers therefore there is no need for procurement involvement. Often procurement participation proves to be time consuming, costly and, due to a lack of understanding of operations, does not always generate the correct solution.
“There are certain circumstances where procurement can provide valuable input to logistics operations, but only when employed as a support function.”
When it comes to these two functions collaborating, it is essential that the operation is led by logistics. Procurement can provide support and best practice advice, however, its lack of in-depth knowledge means its involvement should end there.