Thursday, 6 March 2014

Procurement Logistics

When logistics is required for the procurement of goods it is called procurement logistics. This term covers all the different activities involved in providing the manufacturers with the necessary tools, raw materials and the operational supplies. It also includes the purchase and the replacement of parts. In time gone by the materials required for the manufacturing process were sourced locally, these days the company is able to widen their sources around the world, thanks to the Internet and global networks.

Procurement is the start of the chain, which often involves collecting the various supplies and materials from the original delivery warehouse and taking it to the procurement warehouse.  The system orientation that is used in the procurement logistics looks at the relationships with the supplier’s logistics systems. It’s important to look at ways the inventory of the company’s supply warehouse can be reduced, which involves increasing the inventory at the supplier’s distribution warehouse. The long term effect can be price increases for the supplier’s products. However, by building a jointly owned warehouse by the customer and the supplier it is possible to reduce the warehouse inventory in procurement logistics.
The reduction of warehouse inventory reflects on the total cost orientation. It can result in smaller orders being placed more frequently, possibly increasing transport costs. Therefore the link between procurement logistics and the procurement strategy has to be considered.

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