Purchasing Is From Mars, Logistics is from Venus

Silo structures within retailer organizations are costing millions in supply chain costs. Specifically, a lack of collaboration between Purchasing and Logistics functions within retailers contributes to a highly inefficient inbound supply chain, driving up inbound freight costs and cycle time.

What's needed is for the two functions to collaborate to better manage inbound freight to encourage more consolidated shipments from different vendors. However, discrete functional goals do not promote such collaboration.

The incentive gap

A retail buyer’s job is to purchase goods at the best possible price and get them delivered on time. Buyers win bonuses for purchasing mustard a few cents cheaper. But they don’t care how many trucks show up at the DC, or what’s loaded on each truck, or when those trucks hit the dock.

As for the logistics department, its main job at a retailer is to move product through the DCs and out to stores. Logistics managers who exceed targets for pallets picked per hour, on-time deliveries or similar measures get rewarded. Few worry about inefficiencies on the inbound freight side since this is perceived as something they can’t control.

It’s as if the retailer’s Purchasing and Logistics departments were seated back to back, each managing its separate silo. There’s no incentive for making a cross-functional effort to optimize the supply chain.

Why should retailers care?

When you leave suppliers in charge of their own transportation, many must use costlier LTL shipments. Trucks coming from suppliers in the very same region ride side-by-side on the highway, often one-third empty, and pull up to the DC at the same time using adjacent dock doors. You get traffic jams at your docks, you pay extra for labor to handle unpredictable inbound volumes, and your suppliers build the cost of these inefficient shipments into the prices they charge your company.

The answer: tear down functional walls

The most effective inbound freight network would send freight from multiple vendors to a retail DC in full truckloads, already sorted for delivery to stores. To make that happen, the Purchasing and Logsitics departments must work together to streamline the inbound supply chain.  

How can we put this into action? We write about it in our paper, "The Purchasing/Logistics Disconnect." 

The industry has talked for years about the importance of collaboration in the supply chain and the need for retailers and suppliers to share information more transparently. But collaboration needs to start at home, with each functional department within the retailer chasing shared company goals.