Can Procurement Really Add Value to Logistics?

k a Blog, Supply Chain

With many economists making bleak predictions regarding the ongoing economic crisis, optimising spend is a priority for many businesses. This has led to increased pressure on numerous functions, including logistics and supply chain, to work with procurement to maximize efficiency and drive company growth. Despite this, there remain many who are unconvinced by procurement’s ability to work with logistics and the actual benefits this collaboration can deliver.

4C brought together a selection of professionals from several sectors to determine whether procurement can genuinely add value to logistics operations. Craig Bunker, Managing Partner at 4C Associates, debated that procurement does add value, whereas Keith Newton, International Secretary General, CILT International argued that procurement departments do not have the required approach to add value to logistics operations.

Why Procurement Support is Invaluable to Logistics

“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  propositions and help to retain savings achieved within departmental budgets.

Procurement can act as a mediator and help teams maintain good relationships with external suppliers. By handling complex negotiations, procurement plays the “bad cop” role. 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.

Q&A

The debate was opened to the floor, where it was acknowledged that logistics departments are prone to being “set in their ways” and that with the right integration, procurement can add value. The floor felt that procurement could provide a “fresh set of eyes” and several examples of hidden costs being identified were used to illustrate this point. One participant explained how the use of technical financial modelling had enabled him to get accountants “very excited”!

A number of attendees argued that due to the high level of complexity involved, logistics is best placed to lead relevant procurement operations as they have the skills required to be effective. One participant summed up his position; “I don’t need procurement, I don’t even know who they are. Of course I want the best product at the best price, I have an accountancy qualification and I know how to buy.”

Generally, it was agreed that procurement needs to acknowledge the expertise of logistics professionals and demonstrate experience of procurement to create a positive first impression to build on. It will be a slow process, however, procurement needs to change its reputation from cost saving negotiator to valuable ally. A partnership between both functions, built on shared objectives, can yield valuable results for a business.

Results

The motion, “Procurement Can Add Value to Logistics”, was carried, albeit with the caveat that any collaboration needs to be well managed in order to prove beneficial.