The simplest way to think of procurement logistics is the procurement of materials needed to manufacture products. Procurement logistics includes obtaining the following necessities:
Raw materials
Auxiliary supplies
Operating supplies
Replacement parts
Purchased parts and similar items
The materials are the building blocks of an actual product, but the materials do not magically appear. In other words, an entire section of the supply chain must be devoted to purchasing, shipping, organizing and storing these various components at the procurement warehouse. If the flow of procurement logistics becomes inhibited, it could undermine production in manufacturing centers and subsequent storage warehousing, creating a strain on the distributor and customers.
Every cost associated with manufacturing a product increases its value. If a manufacturer must play 10-percent higher costs of raw materials, the resulting spike in charges may cause an increase to the end-user. Also, the type of raw materials purchased can involve lengthy supply chains, such as an international transit of raw minerals from other sites to the manufacturing center.
Procurement management is all of the processes that go into managing a company’s incoming material needs for manufacturing. This may include obtaining bids from third-party logistics (3PLs) providers, the creation and negotiation of contracts with such providers, the hiring of employees and drivers, and marketing and business professionals.
Each job plays a critical role in ensuring the costs associated with manufacturing do not exceed the company’s expectations. Often, a whole procurement management team may be hired for large organizations or corporations. But, small-business owners may lack the resources to hire all of these professional at the onset of manufacturing. As a result, working with a 3PL directly may be the best way for a new or growing organization to gain access to all of the resources necessary to build a successful enterprise.
Procurement logistics precede the typical logistics supply chain. If the procurement supply chain does not exist, all subsequent parts of the supply chain cannot exist. According to Dimension Data, more accurate demand planning, globalization of suppliers, increased competition, shortened product life cycles, collaboration and detailed procurement management tools are required to keep the global supply chain in operation.
In meeting this need, it is in the best interest of many organizations to work with companies that have a global reach in the supply chain, such as 3PLs, to ensure their ability to compete with the organization in the global economy continues. Ultimately, a 3PL can be the most important source of procurement logistics available, leveling the playing field between big and small companies.