Organisations for logistics decisions
Logistics is defined by the Council of Logistics Management as “that part of the supply chain that plans, implements, and controls the efficient, effective flow and storage of goods, services and related information from the point of origin to the points of consumption in order to meet customers’ requirement.” Logistics costs can be divided to three categories — inventory carrying cost, administrative costs and transportation costs. However, transportation cost could be the highest cost among the three categories.
Due to the large amount of money involved in the movement of goods, most of the large companies have separate logistics department. This separate logistics department will have specialist in functional areas such as carrier and routing selection, packaging, shipment expediting and handling claims in case of loss or damage of goods. For example, a computer manufacturer may have three separate functional areas such as incoming materials shipments, interplant material movement and finished goods shipments. In this organisation structure, it is the responsibility of Procurement to work with this separate Logistics department in order to manage the logistics portions of incoming materials shipments.
In the smaller organisation, the number of logistics decision may not be large enough to set up a logistics department. Here, a buyer or procurement manager may handle the logistics decision. This mean that the buyer must make decisions on selection of carriers and routing, decision and negotiation of freight rates, preparation of shipping documents, expediting and tracking of shipments, payment to external transport provider and settling of claims for loss and damage of goods. In this organisation scenario, it is even more important for Procurement to practice the functions of Logistics department.