Keelvar Blog

Logistics Vs Procurement

February 24, 2015

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Logistics Vs Procurement

Logistics and procurement teams often end up in conflict about how ocean and air freight transport should be procured. Battle lines within major companies are being drawn between these internal groups as the contracting season gets into full swing shortly. But logistics and procurement teams should stop to consider what Sun Tzu once wrote, “The Supreme Art of War is to subdue the enemy without fighting.”

Conflict is inevitable when sides fail to understand each other’s perspective. This could be a result of one side being unreasonable, but is often because both sides have not explained their positions clearly and justifiably. Evidence-based arguments should form the basis for any claims so that a middle ground that all are happy with can be found without unnecessary conflict.

Peter Tirschwell, chief content officer of JOC.com, asserted that procurement’s over-zealous approach to cost savings leads to a deterioration in service levels that increase lead times and inventory carrying costs. Chas Deller of 10XOCEANSOLUTIONS also raised the point that major companies are realizing the multidisciplinary nature of procurement and a collaborative effort is needed to attain best value for money outcomes.

It is this collaboration that needs a clear structure and process for it to work effectively. This structure must include engagements that focus on quantifiable claims supported by data. Evidence-based arguments are powerful so logistics needs to be precise about the rationale for better quality services. The non-price objectives for logistics are as follows and need to be addressed in a total cost of ownership model. When cost elements are broken down into digestible chunks for procurement, the understanding of logistics rationale and preferences becomes much clearer.

Sourcing optimization tools offer the best approach for supporting internal negotiations between logistics and procurement teams because they can handle the multiple dimensions of data with ease. It is essential to have a tool that can offer decision-makers sufficient flexibility to model the cost inputs, construct what-if scenarios and then compare and contrast potential outcomes.

Executives must be incentivized to adopt best practice by having a tool that makes it easier to run procurements and takes away the drudgery of spreadsheet analysis. This is why Keelvar has invested heavily in making its software easy to use.

Contrary to some misconceptions, optimization can act as the bridge between the competing objectives of cost and quality because transparency increases trust and forms the basis for open dialogue. Tools such as Keelvar’s offer the basis for an honest discussion about the potential trade-offs. If there is a disagreement, then it can be isolated to a particular cost-modeling choice or business constraint. The argument switches from high-level abstract and competing objectives to low-level details that can be more readily agreed upon.

The key to realizing a collaborative agreement is to have certainty on trade-offs between cost and non-cost objectives. By providing an online tool that lets both logistics and procurement teams construct their own scenarios, it can lead to exploration of outcomes whose cost trade-offs are clearly understood.

Beneficial cargo owners and tender management consultants need to instill a simple but powerful methodology for procuring transport services that focuses on rich bid information, cost modeling and scenario analysis as the core of an evidence based discussion. This is truly the way forward for progressive organizations seeking efficient but high-quality services.

The original version of this article appeared in JOC.com, Logistics Vs Procurement: Redrawing the Battle Lines. Alan Holland is the author and Founder of Keelvar.