Organizational Damnation #58 Logistics

Logistics should be Procurement’s best friend, but if Logistics is a separate organization, Logistics can be one of Procurement’s worst enemies. This is because while Procurement believes that it’s job is to negotiate the best overall deal, including transportation, Logistics believes transportation is it’s business, and Procurement should just stick to unit price or landed cost from overseas suppliers and let Logistics use it’s relationships to get the best deal.

And while this sounds like a reasonable division of labour, there are a few issues with this arrangement.

  1. The best deal is not always on a purchase level.
  2. The best deal can not always be negotiated by Logistics that have long-term relationships with incumbent carriers.
  3. The best deal can often be improved by atypical routes.

What do we mean by this?

1. If Logistics is in charge, they will obtain “best rates” from current carriers for Procurement for regular routes. But these will be based on current contracts, not new contracts — and if the contracts were not obtained competitively, it won’t be the best rate.

2. if Logistics is in charge, they will look at preferred suppliers for “best rates”, and not go out to bid until it is time to renew the global standing offer contracts, bid sheets which will often be sent only to “preferred” suppliers only — sometimes new suppliers, especially in restricted geographies, will have the best rates.

3. If Logistics is in charge, they will typically look at a fixed set of typical routes — not atypical routes from nearby airpots, nearby ports, or nearby dockyards. It may require a few more miles on a truck, but if the airport fees from a secondary airport are half that of the major airport, it might be worth it.

Plus, the best deals are often negotiated when Procurement can put out a tender that groups nearby lanes on unrelated bids, they can often get better rate sheets for Logistics than Logistics can, especially since Procurement is often impartial and not managing the relationships day-to-day.

But if Procurement tries to use its ability to get Logistics a better deal, Logistics will feel that it’s rights are being trampled on and might do everything it can to get in the way. It will try to prevent tenders, feed backdoor information to preferred carriers, and spread rumours that your actions will damage relationships and increase prices.

What can you do? There are only two options.

Either Procurement manages to convince Logistics to use its processes and best practices to source transportation bids and get the best rates or it manages to convince the C-Suite that Logistics should be under its purview and that the two departments should be merged into one under the CPO.