The effects of procurement and logistics on a business
Procurement means getting the right supplies from the right supplier, at the right price and at the right time. Procurement is a vital component of business success, customers expect products to be available when they need them, and in the right quantity.
Logistics means making sure the correct products are procured and that they will arrive when needed. Logistics is a vital part of any businesses supply chain management. Logistics involves three main elements, transportation, storage and distribution.
- transportationTransportation is the process of getting goods or services from one part of the supply chain to the next. is the process of getting goods or services from one part of the supply chain to the next. This could involve either global or local travel. Many businesses use boats, planes, lorries, vans or pipes to transport their goods.
- storageThe process of storing items before being shipped to a customer. (warehousing) involves storing products before they are sent out to retail shops, or direct to the customer if they are sold online. Many business use large warehouses.
- Distribution ensures products make their way to the end customer in the most efficient way possible. Often this would mean getting products to a shop, or if items are sold online this would be ensuring couriers are used to deliver items.
Both procurement and logistics have impacts on a business’ costs and efficiency.
Business’ costs and efficiency
Business’ costs can heavily influence the overall financial performance of a business. Most businesses aim to keep costs as low as possible, whilst providing products that are of a suitable quality. Unit costs can be reduced if production is quick, or if businesses use inferior quality materials. Delays can cost a business money and can limit cash flowThe movement of money in and out of the business. if products are damaged, lost or unavailable.
Efficiency is also very important to the success of a business. Efficiency could relate to how quickly and effectively an item is produced or delivered to a customer. Being efficient may also reduce the cost of production for a business as less time or resources are required.
Businesses must take care not to focus too heavily on costs and efficiency. Whilst these two elements are important to business success, businesses must also focus on the quality of the product or service being delivered. If the focus on costs and efficiency is too much, this could have a negative overall impact on the business, so finding a balance is essential.
