Building the bridge between procurement and logistics

While the particular approach varies from organization to organization, procurement groups have historically looked at logistics like any other spend category. Composed of various subcategories and straddling the line between direct and indirect, few could argue that it’s not unique. In spite of this fact, savings-minded professionals tend to look at it and see one thing: cost reduction opportunities.

They could benefit from a change of perspective. New opportunities and new sources of value will arise if they start to view logistics through the eyes of a logistician.

Speaking a different language

When a logistics professional looks at the category they see something far different. Whether they’re focused on small parcel, ocean freight, warehousing, LTL, FTL, or any other area of logistics spend – they’re seeing a bigger and more strategically important picture. Where the procurement professional sees opportunities to save and consolidate the supply base, they see an opportunity to mitigate risks, enhance efficiency, and accept a timely delivery of their freight. All the savings in the world won’t do them any good if their freight never arrives in the first place.

That’s why procurement’s “conventional wisdom” is often poorly suited to the category.

Ask someone from logistics what the low-cost option looks like and you’ll likely hear a horror story. It could mean late shipments for materials they need to build their products, lost freight within the carrier network, and utter chaos across the supply chain. In their eyes, carrier relationships are too strategic for a traditional cost reduction exercise. They’re not wrong.

A strategic imperative

The last few years were among the most complicated years on record for logistics professionals and their organizations. While a new one is now underway, disruptive forces aren’t going anywhere. Unexpected legislation, capacity concerns, driver shortages, extreme weather – these have become inescapable part of everyday life. And now, we face an unprecedented challenge…the coronavirus that is impacting supply chains globally. More than ever, it is crucial for procurement and logistics to pool their combined expertise and start collaborating.

New challenges bring a wealth of new opportunities with them, but only if procurement and logistics alike start to think differently and reach a common understanding of what it means to generate value.

For logistics, this will mean putting aside any preconceived ideas about procurement and its approach. It might also mean abandoning relationships (both good and bad) with certain carriers. At the tactical level, logistics decisions are often made with little more than past experience in mind. It’s not uncommon to hear a logistics professional justify their choice of carrier with a story about a single damaged shipment or one unfriendly driver.

The real hard work, however, belongs to procurement. In addition to optimizing (or repairing) relationships with carriers, the function will need to quantify so-called ‘soft savings’ like cost avoidance or extended payment terms. Though the term ‘soft savings’ suggest they’re intangible and low-value, they’re actually as tangible and potentially impactful as any metric. Presenting them in a compelling way will move logistics to action and encourage them to recognize the benefit of collaborating more closely with procurement.

logistics is a uniquely mutable and complicated category. Its professionals and price points are always at the mercy of forces beyond their control. Bringing procurement and logistics closer together will empower both units to optimize what they can control and devise an effective response for everything else.