Purchasing vs. Logistics

I recently came across an

interesting white paper from GT Nexus They're in the business of helping

relatively large companies synchronize supply chain data from various sources

via integrated logistics software. The paper is a thinly-disguised sales pitch,

but a good one. And although it targets retailers, it has some interesting

implications for manufacturing companies as well, even relatively small ones.

The supply chain problem that

needs to be solved, according to GT Nexus, has to do with understanding the

true cost of landed goods (which could be anything from plastic toys to

components for valves). That cost has three components: The first component is

the cost you actually pay per unit. This is usually straightforward. The second

component is the cost of getting those units from the supplier to you. This

cost includes freight, duties and a host of other miscellaneous costs such as

customs brokerage, warehousing, drayage, and loss/damage insurance. The third component

has to do with the financial terms of the sale. This includes factors such as

cash flow, inventory costs and the effect of exchange rates.

Wouldn't it be great, the paper

asks, if you could buy software that would integrate all these factors in real

time?

I would say the answer is yes for

many large companies. But even if the answer is no for your company, there are

some interesting points.

The most important is that as

soon as you have separate departments for purchasing and for handling

logistics, you automatically have a conflict of interest. The goal for

purchasing, to over-simplify a bit, is to get the lowest unit cost for the

desired item. The goal for logistics, again simplifying, is to reduce transportation

costs. Think about it. Situations are going to come up all the time where the

cheapest unit cost can be obtained by buying in, say,  Shenyang, China… but that decision can double

or triple the logistics costs. From the perspective of logistics, it would be

better to buy in Buffalo, New York.

Deciding for Shenyang vs. Buffalo

can have implications for the finance department as well.

A lot of companies are

re-thinking their supply chains in the wake of rising oil costs. If you're one

of them, you should make sure that you get purchasing, logistics and finance

people all in the same room at the same time before making a decision. And,

sorry GT Nexus, but the only software you'll need is an Excel spreadsheet.