Procurement VS Logistics

 

In the year 2010; the construction of a new thermal (coal based) power plant started in a small town named Jaithari on the border of MP & CG. There are more than billions of pieces that are required to erect a power plant, and getting all of them to the spot was a challenge for the logistics team. The location was chosen based on the availability of the raw materials and the prices of other resources and some political influence. All the major equipment required for the erection of the boiler were being procured from China. The steam drum which is a the most integral part of any boiler, also had to be sourced from China.

The major challenge for the team was, the road connectivity issue for the location, its not that the roads aren’t good, but the problem was the route consists of many mountain ranges and getting the 90ft long boiler steam drum through those turns would have been difficult.

A special vehicle named Nicholas is used for the process, the maximum speed of which is only 20kmph.

It was a difficult process, and engineers worked along with the most experienced drivers in the region and got the steam drum to the location, but what was fascinating was they did it before the scheduled delivery time. They found an alternative route which was a bit longer but had straighter roads and hence the vehicle could move at a constant speed and without much difficulty the job was completed. However, the fuel consumption was a bit more as they had to travel around 100-120kms extra, but when they reached the site before time, it amazed the top management.

             

In Transit                                                                  Installed in the boiler

 

The two most important functions of supply chain for a manufacturing concern are Procurement and logistics. These are often used interchangeably by laymen, but the field experts are very specific about the usage of these terms. To start with let us define the two terms:

Procurement: Procurement is the buying or purchasing of goods or services. Procurement is a strategically based methodology and process by which a company evaluates and sources items that are integral to their business model, standardizes purchasing processes and monitors and manages all elements of that process. Procurement is an important financial function for a company and can account for upto 70% of a company’s cost of doing business.

Logistics: is the movement, storage and operations around the utilization of purchased goods and services for whatever business the company is in. it is the process by which those purchases are physically transported and delivered to the right place at the time and in right quantity. Logistics is a coordinating and complementary role that involves operations, marketing, finance and management. It deals with the various routes through which the raw material can reach the consumption site.

Now in the example stated above, we can rest assured that there was an argument between the procurement team and the logistics team, saying that why did you choose that supplier, and why didn’t you tell them to transport it as well, these kinds of discussions happen all around the globe and hence it is very necessary that all the managers and agents work in the best interest of the firm that they are working for and at the same time find the most optimal solutions to the problem at hand.

We can see that it was the job of the procuring involved vendor selection and deciding the scope of vendor and the location of vendor, in this case since the product is procured from overseas, import duty will have to be looked into, all these are the functions of the procurement team, to ensure the smooth transition happens whereas it is the duty of the logistics team to ensure that the product reaches the location within the stipulated time and in perfect condition. 

Both the teams worked day in and day out to get the steam drum to the boiler.