Daily Archives: February 5, 2016

Organizational Sustentation 58: Logistics

While Logistics should be Procurement’s best friend, as per our original damnation post, Logistics can be one of Procurement’s worst enemies. Remember, Procurement has to negotiate the deal with the best overall value, but Logistics is generally responsible for minimizing transportation cost. They may decide to change routes, which lengthens delivery time or puts the cargo at increased risk of theft, select a new carrier, with a lower quality of service and on-time delivery record, or stop using a carrier that will only deliver the organization the promised discount when it gets a sufficient volume of business.

And if Procurement can’t convince the C-Suite that Logistics should be a sub-department of Procurement, what is Procurement to do?

First of all, it has to make friends with Logistics and make sure that Logistics understands that it’s not there to step on Logistics’ toes but simply make the best decisions for the organization overall.

Secondly, it has to accept that Logistics might be better at identifying better carriers and negotiating lower rates and leave it to logistics to oversee the logistics part of any tender and make sure that each invited supplier submits their absolute best bid.

Thirdly, it has to take the time to explain that shifting transportation from the winning supplier to another supplier at a later time not only risks increasing costs (though missed rebates, stock-outs from delivery delays, etc.) but tarnishes the organization’s reputation, which means, in the long run, suppliers will not be as incented to provide their absolute best bid as they know that even if they are awarded the volume, they might get it taken away from them three months down the road. Then it has to get Logistics to agree that the winner, based upon the scoring formula or award methodology that Logistics was aware of (and agreed to) as a stakeholder, will be the winner for the length of the contract (unless the carrier fails to honour its commitment, which allows the organization to terminate the contract).

Fourthly, at review time, it has to work with Logistics to create the reports that demonstrate that Logistics’ decisions, and efforts, have not only decreased overall organizational costs but increased organizational value (through cost, and loss, avoidance).

Most organizational departments want to do the right thing, and Logistics is no exception, so if you work with them (and teach them best practices to enable them to do even better), instead of trying to work around them, you’ll have more success and the damnation they can cause might be minimized. (Or they might secretly hate your guts because they feel you should report to them and stab you in the back at first opportunity. You are in Procurement Hell, after all.)