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The importance of the procurement function in logistics

Article · June 2006

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Citar: Hernández & García, 2006.
Referenciar: Hernández R., José G. & García G., María J. (2006). The Importance of the Procurement Function in Logistics in Proceedings
ICIL’2006, Kaunas University of Technology, Lithuania pp. 149 – 157.

The importance of the procurement function in logistics

José G. Hernández R.
Universidad Metropolitana, Caracas Venezuela.
[email protected]

María J. García G.
Minimax Consultores C.A., Caracas Venezuela
Mí[email protected]

Abstract

The procurement function is a logistic function immediately associated with supplies,

however deeper studies about its repercussions reveal that its implications are well beyond
supplies and its influence covers the whole logistic chain, therefore, to achieve a better
understanding of the ramifications of the procurement function this investigation has surged
seeking as objective: Studying of the procurement function following a logistic model which
allows to analyze its influence in the whole logistic chain. To achieve this objective, the
procurement function is analyzed, studying its subordinated functions, and then analyzing
which of these functions has influence in the stages of logistic, analyzing also which has
influence in the enterprise as a whole.
As a result forty two functions subordinate to logistics are presented in three blocks: Initials,
Internals and Finals, and the repercussion that it has over them, being individually or in
groups, in the different areas of logistic: supplying, production, distribution and inverse
logistic, as in general functions of enterprises, is studied.
Reaching the conclusion that procurement is a function of logistic that goes much farter than
guarantying supplies, but it also has influence on the remaining phases of logistic and in the
overall performance of the organizations.

Keywords: Logistic, Procurement, Subordinated procurement functions, Logistic models.

1. INTRODUCTION

In order to reach the objective of this work: studying of the procurement function
following a logistic model which allows to analyze its influence in the whole logistic chain,
the procurement function of the logistic is analyzed trough a series of subordinated functions,
studying the repercussion of each of them on the different stages of logistic and in the general
functions of the enterprise.

The followed methodology was scientific method for operations research, as it is been done
in other researches (Hernández & García, 2003), which deals with decision making without
going trough hypothesis, the steps to follow are:
a) Defining the problem as it is presented in the objectives, studying the repercussion of the
procurement in the whole ambit of logistics and the enterprise as a whole;
b) Searching for data, centred in analyzing the procurement function;
c) Establishing the alternatives, that will be different models to explain the influence of
procurement in logistics;
d) Evaluate alternatives, according to the traced objectives, observing which of the proposed
alternatives are plausible;
e) Selecting the best alternative, as a product of the previous evaluation, and in function to
secondary objectives, either tacit or explicit;
f) Implementing the alternative, that because this is a theoretical study consists in defining
the repercussion of each subordinated function in the different stages of logistic and
g) Establishing controls, or mechanisms that allows to recognize if the repercussions here
presented are still valid over time.

In this study no field research has been performed, or the procurement function analyzed in
any enterprise, but them have been presented in its different repercussions from a theoretical
point of view, mainly the academic model for understanding of logistics.

2. LOGISTICS AND LOGISTIC MODELS

Before beginning the study of procurement it is necessary to define logistic and

comment on some of the possible models that may be used to explain it.

Although in the literature a great amount of definitions of logistic can be found, all of them
complete and accurate, being one of the most important that of the council of supply chain
management professionals (Cscmp, 2006), because of its adaptation to this research a
modification presented in previous researches (Hernández y García, 2004a; 2004b) will be
utilized: Enterprise logistics it is focused in searching and reaching the greatest satisfaction
present and future of the costumer and understands the planning, organization and control of
all the activities related to the obtaining, flow, gathering and maintenance of materials,
products and services, being the case; since the primary matters source, including there
costumers trough inverse logistic, to the point of sale of the finished product, being local or
international, massive or enterprise, in an effective and efficient manner, minimizing costs
and using modern information technology.

About the models that are usually presented Hinrichs et. al. (2005), Hugos (2003) y Larson
(2005), comment among the more detached, the one based on the concept of Supply chain
management (SCM), from which Larson (2005), does a detailed analysis, its evolution and
how the position of logistic and the SCM has changed, from the case in which the first
include the second, to the complete opposite.

Hinrichs et. al. (2005), comment some of the approaches consequence of the supply chain,
detaching Supply Chain Event Management (SCEM) and the Supply Chain Management
Task Model, which uses Large Logistic Network (LLN), which covers both, planning and
control and distinguishes differents task areas: design, planning and execution.

A pair of models used in the academia to study logistic exists, the Model LAPDI and the
MoLoBaC (Hernández y García, 2004a; 2004b), particularly the firs of them, LAPDI, studies
logistic and with it the organizations trough logistic flows mainly detaching the flows of
materials, information and control flows, following the path of them trough the supplying,
production, distribution and inverse logistic, there its name Logistic of Supply, Production,
Distribution and Inverse, in Spanish, “Logística de Abastecimiento, Producción, Distribución
e Inversa” (LAPDI).

The other model is based on logistics functions, that must be performed in an organization to
accomplish their objectives, therefore its name Logistic Model Based on Charges Modelo
Logístico Basado en Cargos (MoLoBaC), and its main attention is focused on the relations
between those in charge of developing different logistics functions, with their respective
functions and with the functions of their co-workers, superiors and subordinates.

Although the procurement function, is an identified function in the MoLoBaC, for this
research the LAPDI model will be more useful, since the repercussions of the subordinated
functions of the procurement will be analyzed trough it.

3. THE PROCUREMENT FUNCTION

The procurement function can be defined, inspired among others in Ballou (2004) y
Hugos (2003), as the logistic function that handles the management of materials, equipments,
spares and services that must be received by the organization, in the demanded conditions for
it to perform its operations in an adequate manner, with the final objective of delivering the
services required by its clients.

Starting from the meaning of procurement, more than forty subordinate functions of the
procurement function can be distinguished, which are shown in the Table I, where Initials (1
to 22), Internal (23 to 36) and Final (37 to 42) functions are summarized.

Table I. Subordinated functions of procurement.

Identificatio Subordinated function
n
Initials
01 Attending suppliers.
02 Aiding suppliers in order to improve their services and quality.
03 Establishing programs for the development of the suppliers.
04 Analyze and evaluate suppliers and substitute products.
05 Supervise that the supplies reach their respective destinations.
06 Analyze and define new row materials.
07 Constant revision of the suppliers service levels.
08 Keeping a constant knowledge of the whereabouts of the orders.
09 Attending the legalization of merchandise in an opportune manner.
10 Receive support from suppliers for changes in production lines.
11 Negotiate discounts and payment conditions.
12 Renegotiate the service level, when necessary.
13 Verify the completion of the shopping orders.
14 Being watchful that the suppliers receive their payments on time.
 Table I. Subordinated functions of procurement. (Continuation)
15 Intervene as a mediator in front of suppliers complains.
16 Investigate the yield of suppliers.
17 Aiding in the determination of amounts to buy.
18 Involve suppliers in conjoint advertising campaigns.
19 Guaranteeing that the transportation of supplies will be done correctly.
20 Receive samples and quote prices.
21 Analyze and accept new prices.
22 Establishing excellent relationships with colleagues from the
competition.
Interns
23 Pay attention to the quality of row material.
24 Give knowledge to the enterprise about negotiation conditions.
25 Coordinate that the orders go in an adequate an opportune manner.
26 Assuring that rotations of row material and supplies are adequate.
27 Stay current on analysis of Material Requirement Planning (MRP), for
each product.
28 Having current information about the maintenance programs.
29 Adding value to the supplying chain.
30 Constant visits to the company warehouses.
31 Divulgate in the enterprise changes in commercial relations.
32 Assisting in the release of new products.
33 Aiding in defining articles to promote.
34 Supporting advertising campaigns that helps the rotation of products.
35 Applying strategies that improves the yield of the enterprise.
36 Facilitate relations between involved areas with their functions.
Finals.
37 Being informed about new products on the market.
38 Analyzing sale prices against changes in acquisition prices.
39 Knowledge of the yield of the products.
40 Being informed about the competition and the enterprises world.
41 Visiting selling centers and distributors.
42 Permanent information about consumer needs.

As it can be noted more than fifty per cent (twenty two out of forty two) of the subordinate
functions belongs to the Initial stage, who can be somehow associated with supplying, but it
is important to point that procurement it is not only a supply function, but its influence
expands to the whole ambit of logistics and even beyond, in the entire organization.

4. RELATIONS OF THE SUBORDINATED FUNCTIONS OF PROCUREMENT

WITH THE LOGISTIC STAGES

According to the LAPDI model, that as commented, distinguishes four stages in

logistics: supply, production, distribution and inverse logistic, next a brief analysis of how
the forty two subordinated functions of procurement, influence, some more than others, in
each and every stages of enterprise logistics and in the whole of the enterprise, in the figures
1a, 1b, 2a, 2b and 3, a resume will show this analysis, which is the product of consult and
discussion with a few experts.

Trough the functions (01) Attending suppliers, (02) Aiding suppliers in order to improve
their services and quality, (03) Establishing programs for the development of the suppliers,
(04) Analyze and evaluate suppliers and substitute products and (05) Supervise that the
supplies reach their respective destinations, resides their huge influence in supply, achieves
improvements on production, an in a bigger degree in the enterprise, for it improves the
relations with the medium, and may even accomplish a better handling of them. Similar
improvements can be achieved trough function (06) Analyze and define new row material,
only that with it there is also a bigger repercussions on production.

For the subordinated functions (07) Constant revision of the suppliers service levels, (08)
Keeping a constant knowledge of the whereabouts of the orders, (09) Attending the
legalization of merchandise in an opportune manner, (10) Receive support from suppliers for
changes in production lines, (11) Negotiate discounts and payment conditions, (12)
Renegotiate the service level, when necessary and (13) Verify the completion of the shopping
orders, influences similar to the functions (01) to (05) are obtained, but just like in function
(06) with a big repercussion on the production, although one of them (09), with a lesser
influences on general relations with the enterprise.

Subordinated Supply Production Distribution Inverse General

Function

01 05 03 03 02 04

02 05 04 03 03 05

03 05 04 03 03 05

04 05 03 02 03 05

05 05 04 04 02 05

06 05 05 04 03 05

07 05 04 03 02 04

08 05 04 03 02 05

09 05 04 03 01 03

10 05 03 03 03 04

11 05 02 02 01 05

Fig.1a. - Repercussions of the first eleven subordinate Initial functions.

In the case of subordinate functions (14) Being watchful that the suppliers receive their
payments on time, (15) Intervene as mediators in front of suppliers complains y (16)
Investigate over the yield of suppliers, protecting suppliers, besides improving the supplying
stage, an substantial improvement is achieved in the general relations of the enterprise with a
lesser repercussions on the production and distribution, as in inverse logistic.

From the remaining subordinate functions considered as Initials: (17) Aiding in determining
the amounts to buy, (18) Involve suppliers in conjoint advertising campaigns, (19)
Guaranteeing that the transportation of supplies will be done correctly, (20) Receive samples
and quote prices, (21) Analyze and accept new prices y (22) Establishing excellent
relationships with colleagues from the competition, the biggest repercussions again is in the
enterprise in general, and in the production, although additionally (19) also repercussions
production, while (20), (21) y (22), does not repercussions distribution and inverse logistic,
and the latter two does not repercussions production either.

Subordinated Supply Production Distribution Inverse General

Function

12 05 03 03 02 05

13 05 04 04 02 04

14 05 01 01 01 05

15 05 01 01 01 05

16 04 01 01 01 04

17 05 04 04 02 05

18 05 02 03 02 05

19 05 04 04 02 05

20 05 03 01 01 05

21 05 01 01 01 05

22 05 01 01 01 05

Fig.1b. - Repercussions of the last eleven subordinate Initial functions.

On the other hand subordinate procurement functions, classified as Internals: (23) Pay
attention to the quality of row material, (24) Give knowledge to the enterprise about
negotiation conditions, (25) Coordinate that the orders go in an adequate an opportune
manner, (26) Assuring that rotations of row material and supplies is adequate, (27) Stay
current on analysis of Material Requirement Planning (MRP), for each product, (28) Having
a current information about the maintenance programs, (29) Adding value to the supplying
chain, (30) Constant visits to the company warehouses, (31) Divulgate in the enterprise
changes in commercial relations, (32) Assisting in the release of new products, (33) Aiding in
defining articles to promote, (34) Supporting advertising campaigns that helps the rotation of
products, (35) Applying strategies that improves the yield of the enterprise y (36) Facilitate
relations between involved areas with their functions, clearly accomplishes a better relation
with the whole of the enterprise, giving at the same time a great reinforcement to production
and in a lesser degree to distribution, although in particular for (30) and (34), the
repercussions in distribution can be greater, while (24), (30), (31), (32) and (33) have less
repercussions on production, specially (24).

Subordinated Supply Production Distribution Inverse General

Function

23 04 04 03 03 04

24 02 01 02 01 05

25 05 04 03 02 04

26 03 04 03 03 04

27 03 05 03 02 04

28 03 05 03 02 04

29 03 03 03 02 05

Fig.2a. - Repercussions of the first seven subordinate Internal functions.

Subordinate Supply Production Distribution Inverse General

Function

30 03 02 04 02 05

31 03 02 03 02 05

32 02 02 03 01 04

33 03 02 04 02 05

34 03 03 05 02 05

35 04 03 02 02 05

36 05 03 03 03 05

Fig.2b. - Repercussions of the last seven subordinate Internal functions.

Finally the subordinate functions of logistic, classified as Finals: (37) Being informed about
new products on the market, (38) Analyzing sale prices against changes in acquisition prices,
(39) Knowledge of the yield of the products, (40) Being informed about the competition and
the enterprises world, (41) Visiting selling centres and distributors y (42) Permanent
information about consumer needs, even surpass the repercussions in the enterprise in general
than the related to supply itself, with repercussions too in distribution, specially (41), that
directly keeps in touch with consumers.

Subordinated Supply Production Distribution Inverse General

Function

37 05 03 03 03 05

38 04 03 03 01 05

39 03 02 03 02 04

40 03 02 03 02 05

41 04 03 05 02 05

42 03 03 03 03 05

Fig.3. - Repercussions of subordinated Final functions.

Although some repercussions on inverse logistic have been commented, subordinate

functions must be detached (02), (03), (04), (06), (10), (23), (26), (36), (37) and (42), which
have a direct repercussion on inverse logistic in enterprises where applied.

In figures 1a, 1b, 2a, 2b y 3, an scale from 1 to 5 has been used, where 1 is the weakest
repercussion and 5 the strongest, to measure in a relative form the influence of each one of
them in each stage of logistic and the enterprise as a whole, where in a overview it can be
observed that the influence of this functions is not only in the supply area, as it is often
believed, but in some occasions is equal or greater its repercussion in other stages of
logistics, or in the enterprise as a whole.

Once observed the repercussions of the subordinate functions of logistics in the different
stages of logistics and in the enterprise as a whole, the next step is to present some
conclusions and recommendations.

5. CONCLUSIONS AND RECOMMENDATIONS

Observing table I and figures 1a, 1b, 2a, 2b y 3, an immediate conclusion is that the
procurement function plays and fundamental role, not only in logistics, but in the whole
organization, since its subordinate functions have repercussions, not only in the stages of
logistics, but also in the different functions of the organization.

On the other hand, the repercussions analysis of the different subordinated functions of
procurement, although for this investigation only a few experts had been consulted, allows to
pay particular attention to the areas that could be presenting problems and find the causes of
them from its roots, as it would be the case of a failure in the subordinate functions to
procurement.
 Equally it can be concluded that if there is a weakness in any of the stages of logistics,
improvements can be obtained by reinforcing the subordinate procurement functions that
could be causing a negative effect.

All of the above allows to recommend to keep studying procurement with the intention of
finding new subordinate functions of it, and at the same time studying its repercussion in the
organization and in the stages of logistics.

It is also recommended to keep studying with more care the procurement function and its
subordinate functions, trying as possible to establish some quantitative model that allows
weighting the influence of them in the perceptual affectation of each one in the stages of
logistic, or in the enterprise, that them be affecting.

ACKNOWLEDGES

This investigation would not had been possible without the support given by the Universidad
Metropolitana, specially the Deanship of Research and Development and the Engineering
Deanship, trough the Department of Management of Technology. And Minimax Consultores,
C.A., trough its research management.

REFERENCES

[1] Ballou, Ronald (2004). Logística. Administración de la cadena de suministro. Quinta edición. México: Pearson -
Prentice Hall.

[2] Cscmp (2006). Supply Chain Management/Logistics Management Definitions

in: http://www.cscmp.org/Website/AboutCSCMP/Definitions/Definitions.asp
Acceded February - March 2006.

[3] Hernández R., José G. & García G., María J. (2003). Modelo de solución al problema de transporte de múltiples
productos con multiatributo en Anales de la Universidad Metropolitana. ISSN: 1315-4109; Caracas Venezuela;
Volumen 3 Nº 2 2003 (Nueva Serie); pp. 43-60.

[4] Hernández R., José G. & García G. María, J. (2004a, junio). Aprendizaje personalizado bajo CRM. Documento
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(1° CONTECSI); Universidad de Sao Paulo, Sao Paulo, Brasil.

[5] Hernández R., José G. & García G. María, J. (2004b, junio). Los indicadores, herramienta para las ingenierías:
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soporte de Ingeniería y Arquitectura; UCV, Trujillo, Perú.

[6] Hinrichs, Jörg; Rittscher, Jens; Laakmann, Frank & Hellingrath, Bernd (2005). Disturbance management in Large
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[7] Hugos, Michael (2003). Essentials of supply chain management. New Jersey: John Wiley & sons, Inc.

[8] Larson, Paul D. (2005). On the definition and implementation of SCM in Proceedings ICIL’2005; Cancela H.;
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