Logistics Procurement: An Exploration of the Procurement Quadrant and Process Optimization Strategies
Description
Logistics procurement streamlined by leveraging the procurement quadrant framework and implementing optimization strategies for cost savings and operational efficiency.
Table of Contents
What is procurement
Logistic procurement is an essential component of supply chain management that focuses on the acquisition of goods and services required for the production and distribution of products. It involves the process of sourcing, negotiating, purchasing, and transporting raw materials, finished goods, and other resources needed for a company’s operations. Efficient logistic procurement can significantly reduce costs, increase productivity, and improve customer satisfaction. It requires careful planning and coordination between different departments within a company, as well as with external suppliers and logistics providers. With the increasing complexity of global supply chains, logistic procurement has become more critical than ever for companies to maintain a competitive edge in today’s market.
The goal of logistic procurement is to source the necessary resources at the lowest possible cost while ensuring high quality and timely delivery. The process of logistic procurement begins with the identification of the required goods and services. This involves analyzing demand, forecasting future needs, and determining the optimal quantity to purchase. Once the required resources have been identified, the procurement team begins the process of sourcing suppliers.
Sourcing suppliers involves identifying potential vendors, evaluating their capabilities, and negotiating terms and conditions. The procurement team may consider factors such as price, quality, reliability, and delivery times when selecting suppliers. Once a supplier has been selected, the procurement team will work with them to establish a contract that outlines the terms of the agreement.
Logistic procurement also involves the coordination of transportation and logistics to ensure timely delivery of goods and services. This may include arranging for the shipment of materials from suppliers to the production facility, managing inventory levels, and coordinating the distribution of finished products to customers.
Efficient logistic procurement can result in significant cost savings for a company. By negotiating favorable terms with suppliers and optimizing transportation and logistics, companies can reduce their overall procurement costs. This can improve profitability and enable companies to invest in other areas of their business.
In addition to cost savings, logistic procurement can also improve customer satisfaction. By ensuring the timely delivery of products, companies can meet customer demand and maintain high levels of customer service. This can lead to increased customer loyalty and repeat business.
However, there are also challenges associated with logistic procurement. Managing multiple suppliers, coordinating transportation, and ensuring quality control can be complex and time-consuming. Companies must have the necessary resources and expertise to manage the process effectively.
What is procurement quadrant
The procurement quadrant is a framework that helps companies classify their procurement activities based on their strategic importance and the complexity of the goods and services being procured. The quadrant is divided into four categories: tactical, strategic, bottleneck, and leverage.
The tactical quadrant represents low-complexity, low-strategic importance procurement activities. These may include routine purchases of office supplies or maintenance services. The primary goal of tactical procurement is to ensure that the company has the necessary resources to conduct its operations efficiently. Tactical procurement activities can typically be standardized, and purchasing decisions may be made by front-line employees or through pre-approved vendor catalogs.
The strategic quadrant represents high-strategic importance, low-complexity procurement activities. These may include the procurement of critical goods or services that are essential for the company’s operations, such as raw materials or IT equipment. Strategic procurement activities may require more significant investments and may involve a more extensive procurement process, such as the use of competitive bidding or negotiation with suppliers.
The bottleneck quadrant represents high-complexity, low-strategic importance procurement activities. These may include the procurement of specialized goods or services that are critical to the company’s operations but may only be required in small quantities. Bottleneck procurement activities may be time-consuming and require significant expertise to manage effectively.
The leverage quadrant represents high-strategic importance, high-complexity procurement activities. These may include the procurement of goods or services that are critical to the company’s operations and require significant investments, such as capital equipment or long-term service contracts. Leverage procurement activities may involve extensive negotiation and require significant expertise to manage effectively.
The procurement quadrant framework can be used to help companies prioritize their procurement activities and allocate resources accordingly. By identifying which procurement activities are most critical to the company’s operations, companies can focus their resources on strategic procurement activities that offer the most significant potential for value creation. They can also identify areas where procurement processes can be standardized or automated to improve efficiency and reduce costs.
In this project
Our client is using multiple modes of transport, such as air and sea freight, it can be challenging to optimize their operations effectively. This is because different modes of transport have different cost structures, transit times, and other variables that can impact the overall efficiency and cost-effectiveness of the supply chain.
In this context, even small hidden or unexplained charges can quickly add up and eat away at the company’s revenues. This can be especially true for companies with operations spanning across the globe, as they may be subject to a range of different taxes, fees, and other charges in different regions and countries.
Analysis
After our data analysis we found areas were operations could be improved
Sea Freight
Sea freight is a critical component of many companies’ supply chains, particularly for those that operate globally or require the transportation of large quantities of goods. In the procurement quadrant framework, sea freight would typically fall into the strategic or leverage categories, depending on the specific circumstances of the company.
In the strategic quadrant, sea freight may be a high-strategic importance procurement activity due to its critical role in the company’s operations.In the leverage quadrant, sea freight may be a high-strategic importance and high-complexity procurement activity due to its potential impact on the company’s profitability.
However, sea freight procurement can also be a bottleneck procurement activity in some cases, particularly for companies that require specialized shipping services or have unique shipping requirements. In these cases, the complexity of the shipping process may require significant expertise and resources to manage effectively, which can lead to bottlenecks and delays.
To effectively manage sea freight procurement, companies need to take a proactive and strategic approach to planning and execution. This may involve developing relationships with trusted shipping lines and freight forwarders, implementing systems and processes to track and manage shipping activities, and leveraging data and analytics to optimize shipping routes and modes.
By effectively managing their sea freight procurement activities, companies can improve their overall supply chain efficiency, reduce costs, and ensure that they are able to meet the needs of their customers in a timely and cost-effective manner. This requires ongoing monitoring, analysis, and optimization to ensure that sea freight procurement activities are aligned with the company’s strategic objectives and market conditions.
Sea Freight Bulk:
Sea freight bulk refers to the transportation of large quantities of bulk cargo such as minerals, grain, or oil. This type of sea freight is typically shipped in large vessels such as bulk carriers or tankers. In the procurement quadrant framework, sea freight bulk may fall into the bottleneck category due to its high complexity and potential impact on the company’s operations.
Managing sea freight bulk procurement can be complex due to a range of factors, including the nature of the cargo, shipping regulations, and supply chain disruptions. For companies that rely on sea freight bulk to transport their products, effective procurement planning and execution are critical to minimizing the risk of delays or disruptions.
To effectively manage sea freight bulk procurement, companies may need to develop relationships with trusted shipping lines and freight forwarders, negotiate favorable rates and terms, and implement systems and processes to track and manage shipping activities. This may involve leveraging data and analytics to optimize shipping routes and modes, ensuring compliance with regulations, and monitoring shipping activities in real-time to identify and address potential issues.
Sea Freight Containerised:
Sea freight containerized refers to the transportation of cargo in standard-sized shipping containers that can be easily loaded and unloaded from container ships. This type of sea freight is commonly used for the transportation of finished goods, such as consumer electronics, clothing, and furniture. In the procurement quadrant framework, sea freight containerized may fall into the strategic or leverage categories, depending on the specific circumstances of the company.
In the strategic category, sea freight containerized may be a high-strategic importance procurement activity due to its critical role in the company’s supply chain.
In the leverage category, sea freight containerized may be a high-strategic importance and high-complexity procurement activity due to its potential impact on the company’s profitability. In both cases, effective management of sea freight containerized procurement requires a proactive and strategic approach to planning and execution. This may involve developing relationships with trusted shipping lines and freight forwarders, implementing systems and processes to track and manage shipping activities, and leveraging data and analytics to optimize shipping routes and modes.
By effectively managing their sea freight procurement activities, companies can improve their overall supply chain efficiency, reduce costs, and ensure that they are able to meet the needs of their customers in a timely and cost-effective manner. This requires ongoing monitoring, analysis, and optimization to ensure that sea freight procurement activities are aligned with the company’s strategic objectives and market conditions.
Sea Freight Containerised:
Air freight is an important mode of transportation in the logistics industry, especially for companies that need to transport time-sensitive or high-value goods over long distances. In the procurement quadrant framework, air freight may fall into different categories depending on the specific circumstances of the company.
Air freight is typically classified as either general cargo or specialized cargo. General cargo is typically transported in passenger planes, while specialized cargo requires dedicated cargo planes. In the procurement quadrant framework, air freight may fall into the strategic or leverage categories, depending on the specific circumstances of the company.
In the strategic category, air freight may be a high-strategic importance procurement activity due to its critical role in the company’s supply chain.
In the leverage category, air freight may be a high-strategic importance and high-complexity procurement activity due to its potential impact on the company’s profitability.
Effective management of air freight procurement requires a proactive and strategic approach to planning and execution. This may involve developing relationships with trusted airlines and freight forwarders, implementing systems and processes to track and manage shipping activities, and leveraging data and analytics to optimize shipping routes and modes.
By effectively managing their air freight procurement activities, companies can improve their overall supply chain efficiency, reduce costs, and ensure that they are able to meet the needs of their customers in a timely and cost-effective manner.
Air freight procurement can be complex due to a range of factors, including the nature of the cargo, shipping regulations, and supply chain disruptions. For companies that rely on air freight to transport their products, effective procurement planning and execution are critical to minimizing the risk of delays or disruptions. This requires ongoing monitoring, analysis, and optimization to ensure that air freight procurement activities are aligned with the company’s strategic objectives and market conditions.
Freight forwarding
Freight forwarding is an essential component of logistics procurement. It involves the transportation of goods from one location to another, often across international borders, and requires the coordination of multiple transportation modes, including air, sea, and land.
In the procurement quadrant framework, freight forwarding may fall into different categories depending on the specific circumstances of the company. It may fall into the strategic or leverage categories, depending on the importance of the activity to the company’s supply chain and profitability.
In the strategic category, freight forwarding may be a high-strategic importance procurement activity due to its critical role in the company’s supply chain. In this case, the company may need to carefully manage its freight forwarding procurement to ensure that it has sufficient capacity and timely deliveries to meet its production needs.
In the leverage category, freight forwarding may be a high-strategic importance and high-complexity procurement activity due to its potential impact on the company’s profitability. This may involve negotiating favourable rates with freight forwarders, optimizing shipping routes, and implementing systems and processes to track and manage shipping activities.
Effective management of freight forwarding procurement requires a proactive and strategic approach to planning and execution. This may involve developing relationships with trusted freight forwarders, implementing systems and processes to track and manage shipping activities, and leveraging data and analytics to optimize shipping routes and modes. By effectively managing their freight forwarding procurement activities, companies can improve their overall supply chain efficiency, reduce costs, and ensure that they are able to meet the needs of their customers in a timely and cost-effective manner.
Freight forwarding can be complex due to a range of factors, including the nature of the goods being transported, shipping regulations, and supply chain disruptions. For companies that rely on freight forwarding to transport their products, effective procurement planning and execution are critical to minimizing the risk of delays or disruptions. This requires ongoing monitoring, analysis, and optimization to ensure that freight forwarding procurement activities are aligned with the company’s strategic objectives and market conditions.
Recommendation
- Analyse the problem: The first step is to identify the specific problem you are facing. For example, you may be experiencing delays in shipping, or you may be facing high costs for your freight services. Once you have identified the problem, you can begin to analyse it in more detail.
- Determine the category: Next, you need to determine where the problem falls within the procurement quadrant framework. Is it a strategic or leverage procurement activity? This will help you determine the level of importance and complexity of the problem, and the approach you need to take to address it.
- Develop a strategy: Once you have determined the category of the problem, you can develop a strategy to address it. For example, if the problem falls into the strategic category, you may need to focus on building relationships with trusted freight forwarders, negotiating favourable rates, and implementing systems and processes to track and manage shipping activities. If the problem falls into the leverage category, you may need to focus on optimizing shipping routes and modes, and developing contingency plans to minimize disruptions.
- Implement the strategy: Once you have developed a strategy, you can begin to implement it. This may involve working closely with your freight forwarders, implementing new systems and processes, or negotiating new contracts. You may also need to monitor the effectiveness of your strategy and make adjustments as needed.
- Evaluate the results: Finally, you need to evaluate the results of your strategy. Did it successfully solve the problem? Did it achieve the desired outcomes? If not, you may need to revisit the procurement quadrant framework and adjust your approach accordingly.
Results
Achieving an 11% reduction in overall costs is a significant accomplishment that requires careful planning and execution. By taking a strategic approach to logistics procurement and implementing a range of measures to reduce costs, companies can improve their competitiveness, profitability, and overall success in the market.
Results
Logistics procurement is a critical component of the supply chain that involves the sourcing, negotiation, and management of goods and services required for the movement of goods from one location to another. The procurement quadrant framework is a useful tool for analysing and addressing procurement challenges, enabling companies to identify the level of complexity and importance of different procurement activities and develop a strategic approach to addressing them.
Whether it’s optimizing shipping routes, negotiating favourable rates, implementing new systems and processes, or building relationships with trusted suppliers, logistics procurement can have a significant impact on a company’s bottom line, customer satisfaction, and overall competitiveness. By taking a comprehensive and strategic approach to logistics procurement, companies can improve their operational efficiency, reduce costs, and better meet the needs of their customers.
It’s worth noting that the logistics industry is constantly evolving, and companies need to be proactive in adapting to changing market conditions, customer demands, and technological advancements. By continually assessing and optimizing their logistics procurement processes, companies can stay ahead of the curve and maintain a competitive edge in the marketplace.
Key learnings
- Logistics procurement is a critical function of the supply chain that involves the sourcing, negotiation, and management of goods and services required for the movement of goods from one location to another.
- The procurement quadrant framework is a useful tool for analyzing and addressing procurement challenges, enabling companies to identify the level of complexity and importance of different procurement activities and develop a strategic approach to addressing them.
- Different modes of transport, such as sea freight, air freight, and freight forwarding, have unique procurement challenges that require specific strategies to address.
- Achieving cost reduction without compromising quality or service requires a comprehensive and strategic approach to logistics procurement.
- The logistics industry is constantly evolving, and companies need to be proactive in adapting to changing market conditions, customer demands, and technological advancements.
By continually assessing and optimizing their logistics procurement processes, companies can stay ahead of the curve and maintain a competitive edge in the marketplace.
About the Author
Vivek Sood: Sydney based managing director of Global Supply Chain Group, a strategy consultancy specializing in supply chains. More information on Vivek is available on www.linkedin.com/in/vivek and more information on Global Supply Chain Group is available www.globalscgroup.com
Vivek is the Managing Director of Global Supply Chain Group, a boutique strategy consulting firm specialising in Supply Chain Strategies, and headquartered in Sydney, Australia . He has over 24 years of experience in strategic transformations and operational excellence within global supply chains. Prior to co-founding Global Supply Chain Group in January 2000, Vivek was a management consultant with top-tier strategy consulting firm Booz Allen & Hamilton.
Vivek provides strategic operations and supply chain advice to boards and senior management of global corporations, private equity groups and other stakeholders in a range of industries including FMCG, food, shipping, logistics, manufacturing, chemicals, mining, agribusiness, construction materials, explosives, airlines and electricity utilities.
Vivek has served world-wide corporations in nearly 500 small and large projects on all continents with a variety of clients in many different industries. Most of projects have involved diagnostic, conceptualisation and transformation of supply chains – releasing significant amount of value for the business. His project work in supply chain management has added cumulative value in excess of $500M incorporating projects in major supply chain infrastructure investment decisions, profitable growth driven by global supply chain realignment, supply chain systems, negotiations and all other aspects of global supply chains.
Vivek has written a number of path breaking articles and commentaries that are published in several respected journals and magazines. Vivek has spoken at several supply chain conference, forums and workshops in various parts of the world. He has also conducted several strategic workshops on various aspects of supply chain management. He received his MBA with Distinction from the Australian Graduate School of Management in 1996 and prior to these studies spent 11 years in the Merchant Navy, rising from a Cadet to Master Mariner.
More information on Vivek is available on www.linkedin.com/in/vivek and more information on Global Supply Chain Group is available on www.globalscgroup.com
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