The difference between purchasing – and operational savings in logistics

CONTRIBUTION BY Rogier van Zon – Owner at Logexma

Who has never seen conflicting target settings in companies? Targets defined per department challenging the department members to do the best for the department and with that, if successfully done, earning a bonus.

In fact, there is nothing wrong with challenging team members and if results are achieved to reward them for this with a bonus.

The problem starts where there is a view on department level and not on company level, in many cases people working for the same company start working against each other to achieve their own targets / bonus.

An example:

A purchasing department is challenged to get transportation costs down and to renegotiate transport contracts. Of course input will be requested from the operational department in order to get quotations for the right lanes, equipment, service levels, etc. But the big push will be on lower cost and this will be achieved.

With the lower costs received the budgets will be updated and the operational department can use the new carrier / updated prices for all their future needs, and the fun starts.

In a market where capacity (from time to time) is limited, the carrier often does not commit to the whole volume for the low price and soon the negotiation starts to have capacity in time for some additional money.

[blockquote style=”3″]Also when the operational departments do need some flexibility as; different loading time, faster lead-time, waiting time etc, the bill will be presented as this is not covered in the tariff, neither the carrier will have any possibility to be flexible as the prices is “rock bottom”.[/blockquote]

The result is in many cases that the negotiated prices and the budgets, based on these prices, will not be met.

Outcome: one department celebrating the other department struggling.

This does not look like a difficult problem to solve but why is this happing still so often?

As long as we see, in this case, purchasing and logistics as two different departments with their own targets and directions, there will be no solution.

The fragmented approach will never lead to an integral best decision.

The solution will be found in an integrated view on the total business where targets are aligned over the different departments and where all departments will work to get the best thing done for the company and not for the department.

[blockquote style=”1″]This will lead to better costs levels for the company and better operational performance.[/blockquote]